UC-NRLF 


SB    3fi 


Reorganization 

of  the 

Railways 


JOHN  BYRNE  &  COMPANY 
Washington,  D.  C. 


Reorganization 

of  the 

Railways 


By 

TAYLOR  VINSON 

'< 

Huntingdon,  W.  Va. 


JOHN  BYRNE  &  COMPANY 
Washington,  D.  C. 


TABLE  OF  CONTENTS. 

Page 

Reorganization  of  the  Railways   2 

National  Transportation  Court  7 

Powers  of  the  National  Transportation  Court 8 

Consolidation  and  Reorganization    12 

Appoint  a  Director  for  Each  Carrier 13 

Terminals   14 

Facilities    14 

Advice  from  the  Commission 14 

Controversies  with  the  Government   15 

General    Jurisdiction    15 

Employees  Compensation   15 

Taxation 16 

Production  of  Evidence   17 

Rules  and  Regulations    17 

Appeals  from  its  Rulings 17 

Interstate  Commerce  Commission  (To  be  reorganized)    19 

Removal  of  Commissioners    19 

Appellate   Jurisdiction    19 

State  Commissions  20 

General  Principles   21 

Bureau  of  Statistics   21 

Suspension  of  Schedules    21 

Minimum   Rates 22 

Differentials    22 

Wages 22 

Pooling  Arrangements    23 

Conference  of  Carries   23 

Coal  Cars  24 

Distribution  of  Excess  Earnings    24 

Carriers '  Compensation  for  Services  to  the  Government  . .  25 

Amendments  to  Interstate  Commerce  Acts 25 

Existing  Evils  Must  be  Removed 27 

Evils  to  be  Eradicated  31 

Necessity  for  a  Central  Authority 35 

Additional   Regulating  Bodies 45 

Railway   Financing    49 

Federal  Incorporation,    55 

Police    Power 65 

Terminals 71 

Transferring  Existing  Railways  to  Federal  Corporations  ....  76 


V 


456697 


Bonds  and  ther  Obligations 78 

Exchange  of  Stock 81 

Fixing  Stock  Values   , 82 

Reorganization  of  Capitalization    86 

The  Public  Welfare 91 

The  Investor  in  Railway  Securities 95 

The  Present  Stockholder 100 

Analysis  of  the  Securities  Holders '  Plan 106 

The  Obliteration  of  State  Commissions Ill 

Existing    State    Authority    Over    Interstate    Railways    Con- 
demned by  the  Supreme  Court  > 128 

Regional  Districts   131 

Excess  Earnings 135 

One-third  of  Excess  to  Employees  137 

What  Shall  be  Done  with  Excess  Earnings 144 

Plan  of  the  Railway  Executives 148 

Free  from  Political  Influence  150 

Regional  Railways  155 

Advantages  of  Regional  Railways 166 

Operation  of  Regional  Railways 174 

Government  Guaranties    , 178 

French  Financing  of  Roads  a  Failure 185 

Regulation  of  Railway  Employees 189 

The  Right  to  Strike 195 

Suggestions  of  the  Supreme  Court   . . » 202 

Return  of  Railways  to  Their  Owners 205 


REORGANIZATION  OF  THE 
RAILWAYS 

The  experience  we  have  had  with  our  rail- 
way problems  demonstrate  very  fully  many  of 
the  evils  that  must  be  eliminated  before  we 
can  hope  to  have  an  efficient  system  of  trans- 
portation adequate  to  the  public  needs.  Fi- 
nancing the  carriers  has  not  always  been 
either  honest  or  wise.  Many  errors,  both  of 
judgment  and  methods,  have  appeared  in  the 
construction  and  operation  of  the  railways, 
and  such  mistakes  have  tended  to  depress 
their  credit.  Regulation  by  commissions  and 
other  public  officials,  reducing  income  and  in- 
creasing expenditures,  together  with  the  re- 
strictions found  in  State  and  National  legis- 
lation, have  all  combined  to  increase  the  bur- 
dens of  the  railways  and  rendered  them  un- 
able in  most  instances  to  properly  perform 
their  functions  as  common  carriers. 

In  order  to  give  the  public  the  service  to 
which  it  is  entitled,  these  evil  practices  must 
be  abandoned,  railway  finance  reorganized 
and  credit  established  and  maintained.  Rates 
and  charges  will  have  to  be  so  adjusted  on  a 
reasonable  basis  as  to  yield  the  investor  in 


railway  securities  a  fair  return.  Capitaliza- 
tion should  represent  as  near  as  may  be  the 
actual  value  of  the  property  used  in  conduct- 
ing transportation. 

Complete  governmental  regulation  with  pri- 
vate ownership  and  operation  must  be  the 
main  purpose  of  the  Congress  to  achieve  in 
any  plan  that  will  meet  the  public  require- 
ments. It  is  believed  that  the  plan  herein  sub- 
mitted, if  adopted,  will  afford  a  unified  system 
of  transportation  that  will  be  just  to  the  pub- 
lic, the  investors  and  the  employees. 

It  was  thought  advisable  to  make  a  short 
analysis  of  some  other  plans  that  have  been 
suggested,  in  order  to  contrast  them — where 
they  differ— as  a  part  of  the  general  argu- 
ment: 

PLAN 

A 

Establish — The  National  Transportation 
Court,  having  original  and  appellate  jur- 
isdiction, both  judicial  and  administra- 
tive 

B 

Amend  the  Act  creating  the  Interstate  Com- 
merce Commission  and  extend  its  powers, 
giving  right  of  appeal  to  The  National 
Transportation  Court. 


c 

Give  State  Commissions  primary  jurisdiction 
over  interstate  and  intra  state  commerce, 
with  right  of  appeal  to  Interstate  Com- 
merce Commission. 

These  three  tribunals  will  be  all  the  machin- 
ery for  a  complete  system  of  Governmental 
regulation  of  railways.  They  will  have  full 
and  final  jurisdiction  to  hear  and  determine 
every  possible  question  that  can  arise  pertain- 
ing to  both  state  and  interstate  transporta- 
tion. State  Commissions  will  be  auxiliary  to 
the  Interstate  Commission. 

There  may  be  a  question  as  to  the  power  of 
the  Transportation  Court  to  exercise  both  ju- 
dicial and  administrative  functions.  As  its 
judicial  powers  can  only  be  exercised  in  mat- 
ters pertaining  to  interstate  commerce,  it  is 
more  than  likely  that  the  Supreme  Court 
would  decide  that  any  administrative  tribunal 
vested  with  authority  to  deal  with  all  ques- 
tions affecting  that  subject  could  likewise  ex- 
ercise quasi  judicial  powers  to  the  extent  of 
affording  a  proper  court  review.  If,  however, 
its  functions  cannot  extend  to  the  judicial 
power,  but  would  be  confined  to  purely  admin- 
istrative matters,  then  its  orders  can  be  sub- 
ject to  court  review  in  the  manner  and  to  the 


6, 

same  extent  as  Interstate  Commissions  may 
now  be  reviewed.  If  the  commerce  clause 
does  not  give  the  Congress  power  to  provide  a 
judicial  review  by  a  tribunal  specially  ap- 
pointed for  the  purpose,  it  must  follow  neces- 
sarily that  the  Congress  does  not  have  the  un- 
qualified right  to  regulate  interstate  com- 
merce. 

In  any  event  court  review  would  lie  only  to 
the  orders  of  the  Transportation  Court,  as  er- 
rors of  State  and  Interstate  Commissions  may 
be  corrected  by  that  tribunal  on  appeal. 


TRANSPORTATION  COUKT 

Congress  should  establish  a  Tribunal  by  the 
name  of 

NATIONAL  TRANSPORTATION  COURT, 

composed  of 

One  railway  executive  and  operator, 
Two  lawyers  experienced  in  railway  laws, 
One  large  shipper, 

One  banker  familiar  with  railway  financing, 
One  representative  of  employees, 
One  representative  of  agriculture, 
One  representative  securities  holders, 
One  manufacturer. 

Each  to  be  among  the  ablest  men  of  the  class 

from  which  he  is  taken. 

Term  of  office,  twelve  years,  after  first  ap- 
pointments; so  arranged  that  three  will  be 
appointed  every  four  years.  Appointments 
made  by  the  President  and  to  be  confirmed  by 
the  Senate.  Eemovals  can  only  be  made  by 
impeachment  in  same  manner  and  for  same 
causes  as  United  States  Judges  are  im- 
peached. 

Salaries :    twenty  thousand  dollars  a  year. 

7 


8 
POWERS  OF  THE  COUBT 

(1)  To  appoint,  remove  and  fix  the  compen- 

sation and  prescribe  the  duties  of  all 
clerical  and  other  employees,  experts 
and  attorneys,  that  it  may  deem  expe- 
dient to  properly  perform  the  duties  of 
the  court. 

(2)  To  have  appellate  jurisdiction  over  all 

orders  issued  by  the  Interstate  Com- 
merce Commission.  This  appeal  to  be 
the  sole  remedy  for  all  those  who  deem 
themselves  aggrieved  by  the  Commis- 
sion's rulings,  and  to  be  heard  upon  the 
original  record  made  before  the  Com- 
mission. In  the  appellate  proceedings 
the  Transportation  Court  shall  exercise 
administrative  powers  where  the  exi- 
gency of  the  case  demands  it ;  and  shall 
also  exercise  its  judicial  powers,  which 
shall  operate  as  a  court  review  of  the 
Commission's  administrative  orders,  to 
the  same  effect  as  District  courts  now 
have  jurisdiction  to  grant  court  reviews, 
which  authority  and  jurisdiction  shall 
be  taken  from  all  courts  now  having 
such  power  and  vested  in  the  Transpor- 
tation Court  exclusively. 


9 

(3)  To  have  same  authority  to  enforce  its  rul- 

ings and  findings,  as  United  States 
Courts  have  to  enforce  their  judgments 
and  decrees. 

(4)  To  issue  charters  of  Federal  incorpora- 

tion of  all  railways  and  steamship  com- 
panies handling  interstate  commerce, 
under  forms  to  be  prescribed  by  the 
court. 

(a)  The  court  to  ascertain  the  average 
value  of  outstanding  railway  stocks 
running  over  a  period  of  three 
years,  and  cause  the  federal  com- 
pany to  issue  its  stock  at  par  in 
payment  for  the  outstanding  stock 
on  the  basis  of  the  average  value  so 
ascertained.  The  present  holder  of 
stock  shall  surrender  the  same  for 
cancellation,  on  receipt  of  the  fed- 
eral corporation  stock.  The  court 
shall  thereafter  ascertain  the  full 
value  of  the  property  of  the  rail- 
way, and  the  Federal  corporation 
shall  issue  such  additional  shares 
of  its  stock  at  par  to  the  present 
stockholders  or  their  assigns,  as 
may  be  necessary  to  cover  the  ac- 


10 

tual  value  thereof  when  so  ascer- 
tained. 

In  like  manner  the  value  of  rail- 
way bonds  and  other  outstanding 
evidences  of  debt  shall  be  ascer- 
tained, and  any  holder  of  such  se- 
curities may  surrender  them  and 
accept  the  stock  of  the  Federal  cor- 
poration at  par  in  lieu  thereof. 

(b)  The  court  shall  not  permit  rates  and 

fares  to  be  fixed  so  low  that  they 
will  not  yield  a  minimum  of  five 
per  cent,  per  annum,  to  be  applied 
on  all  the  stock  issued  by  the  Fed- 
eral corporation  under  efficient 
management.  The  court  may  so 
adjust  rates  and  fares  as  to  pro- 
duce an  emergency  fund  over  and 
above  the  five  per  cent,  minimum. 
The  emergency  fund  may  be  ap- 
plied on  dividends  when  an  unu- 
sual condition  arises  to  prevent  the 
carrier  from  earning  the  minimum. 

(c)  The  court  may  require  the  carriers  to 

pay  for  permanent  improvements, 
additional  rolling  stock,  new  con- 
struction, extensions,  better  ter- 


11 

minal  facilities,  out  of  the  proceeds 
of  stock  sales. 

(d)  The  court  shall  approve  all  stock  and 

securities  issues,  fix  a  minimum 
price  at  which  the  same  may  be 
sold,  and  specify  the  purpose  to 
which  the  proceeds  will  be  applied. 

(e)  The  certificates  of  incorporation  to 

be  issued  by  the  court  shall  give  to 
the  carrier  all  the  powers,  includ- 
ing right  of  condemnation,  which 
are  necessary  or  expedient  to  en- 
able them  to  construct  and  operate 
railways  in  the  most  efficient  man- 
ner, including  the  right  to  condemn 
and  appropriate  streets,  alleys,  and 
other  public  property  of  cities, 
towns,  villages,  and  other  munici- 
palities, whevere  the  same  are  rea- 
sonably necessary  for  transporta- 
tion purposes. 

(f)  The  court  shall  prescribe  rules  for 

the  corporate  organization  of  the 
company  after  the  charter  is  is- 
sued. 

(g)  The  court  may  direct  the  surrender 

of  all  existing  charters  to  the  states 


12 

under  whose  authority  they  were 
granted,  and  may  enjoin  any  car- 
rier operating  under  a  State  char- 
ter from  doing  any  interstate  or 
other  business  affecting  interstate 
commerce. 

(h)  Existing  carriers  shall  convey  and 
transfer  all  their  property  to  the 
Federal  company  under  such  forms 
of  transfer  as  the  court  may  pre- 
scribe. 

(5)   CONSOLIDATION  AND  REORGANI- 

ZATION 

The  court  shall  have  and  exercise  full 
authority  and  jurisdiction  over  all  mat- 
ters pertaining  to  the  consolidation  and 
reorganization  of  railways.  It  may  au- 
thorize one  carrier  company  to  acquire 
by  purchase,  lease  or  consolidation  any 
parallel  competing  lines  to  be  operated 
by  a  single  management.  This  shall  in- 
clude the  right  to  acquire  and  operate 
electric  railways  and  steamship  lines, 
as  part  of  its  transportation  system. 

The  court  shall,  whenever  practica- 
ble, raise  all  railway  receiverships  upon 
such  a  basis  of  capitalization  as  will 


13 

permit  the  carrier  to  earn  five  per  cent, 
on  its  stock  for  dividend  purposes,  and 
to  this  end  may  intervene  in  any  re- 
ceivership proceedings  for  the  purpose 
of  aiding  the  court  wherein  the  cause 
is  pending  to  a  speedy  disposition  of  it. 

(6)  APPOINT  A  DIKECTOK  FOB  EACH 

CAKKIEK 

The  court  shall  appoint  one  compe- 
tent person  who  will  be  an  ex-officio 
member  of  the  board  of  directors  of 
each  carrier  company  with  the  same 
powers  thereon  as  any  other  member 
of  the  board,  wrho  shall  attend  all  the 
meetings  of  the  board,  rendering  such 
counsel  and  assistance  as  he  may.  He 
shall  make  such  report  to  the  court  as 
it  may  require. 

He  may  ask  the  board  to  remove  the 
chief  executive  head  of  the  carrier  for 
inefficiency,  or  failure  to  properly  per- 
form his  duties,  and  report  his  action 
to  the  court,  which  shall  ascertain  the 
facts,  and  if  in  the  court's  opinion  the 
facts  warrant  it  the  board  shall  remove 
the  official  complained  of,  upon  the  re- 
quest of  the  court. 


14 

(7)  TERMINALS 

Each  carrier  shall  be  entitled  to  the 
use  of  the  terminals  of  any  other  carrier 
when  practicable.  The  conditions  and 
compensation  for  such  use  thereof  may 
be  fixed  by  the  court  when  the  carriers 
cannot  agree.  The  court  may  order  the 
increase  of  any  terminal  facilities  and 
apportion  the  cost  of  the  construction 
and  maintenance  thereof  among  the 
carriers  using  the  same. 

(8)  FACILITIES 

The  court  shall  have  power  to  require 
the  carriers  to  provide  themselves  with 
all  the  necessary  rolling  stock,  track- 
age, yards,  terminal  and  other  facili- 
ties for  the  expeditious  handling  of  all 
the  traffic  that  may  be  offered  them 
under  normal  conditions. 

(9)  ADVICE  FEOM  THE  COMMISSION 

The  court  may  require  information 
or  advice  from  the  Interstate  Com- 
merce Commission  in  furtherance  of 
the  discharge  of  its  duties  under  this 
act. 


15 

(10)  CONTROVERSIES  WITH  THE  GOV- 

ERNMENT 

The  court  shall  hear  and  determine 
all  matters  in  controversy  between  the 
carriers  and  the  United  States  Govern- 
ment arising  out  of  the  possession  and 
operation  of  the  railways  by  the  Gov- 
ernment under  the  Act  of  Congress.  It 
shall  fix  the  date  when  the  Government 
shall  return  possession  and  control  of 
the  carriers  to  their  owners. 

(11)  GENERAL  JURISDICTION 

The  court  shall  have  general  jurisdic- 
tion over  all  matters  affecting  inter- 
state commerce  or  the  agencies  em- 
ployed therein,  and  may  prescribe  and 
enforce  all  rules  and  regulations  that 
will  facilitate  the  movement  thereof. 

(12)  EMPLOYEE'S  COMPENSATION 

The  court  shall  establish  a  work- 
man's Compensation  Bureau,  who  shall 
make  compensation  for  all  injuries  re- 
ceived by  the  carriers'  employees,  ex- 
cept injuries  wilfully  inflicted  on  him- 
self by  the  injured. 


16 

The  compensations  shall  be  paid  out 
of  a  fund  created  by  the  payment  of  one 
per  cent,  on  each  pay  roll  into  the  treas- 
ury of  the  bureau,  one-fourth  of  which 
shall  be  deducted  from  the  wages  of  the 
employees  and  the  other  three-fourths 
paid  by  the  company.  This  percentage 
may  be  increased  or  decreased  as  the 
requirements  may  demand. 

No  suit  shall  be  brought  or  main- 
tained in  any  court  by  an  employee  or 
his  personal  representative  against  any 
carrier  on  account  of  personal  injuries, 
but  all  compensations  therefor  shall  be 
paid  out  of  the  fund  provided  for  the 
purpose. 

The  court  shall  prescribe  all  the  rules 
and  regulations  for  administering  the 
compensation  department. 

(13)  TAXATION 

The  court  shall,  under  such  rules  as 
it  may  prescribe,  ascertain  the  value  of 
railway  properties  in  every  state,  coun- 
ty, municipality  or  taxing  district ;  and 
on  the  values  so  found  the  state  taxing 
authorities  shall  levy  the  same  rate  of 
taxation  as  it  imposes  on  other  tangible 


17 

property  within  its  jurisdiction.  The 
taxes  so  levied  shall  be  paid  at  such 
times  as  the  taxing  authorities  may  di- 
rect. 

No  other  taxes  shall  be  levied  or  col- 
lected under  state  law  upon  the  prop- 
erty, income,  or  stock  of  the  carrier 
company. 

( 14 )  PRODUCTION  OF  EVIDENCE 
The  court  shall  have  the  same  power 

to  administer  oaths,  examine  witnesses, 
require  the  production  of  records, 
books,  papers  and  documents  to  be  used 
as  evidence  that  is  exercised  by  United 
States  courts  of  general  jurisdiction, 
and  a  like  power  to  punish  for  contempt 
or  failure  to  obey  its  orders. 

(15)  RULES  AND  REGULATIONS 
The  court  shall  have  power  to  pre- 
scribe all  rules  and  regulations  and 
procedure  that  may  be  necessary  or  ex- 
pedient to  enable  it  to  properly  perform 
any  and  all  the  duties  required  of  it 
under  this  act. 

( 16 )  APPEALS  FROM  ITS  RULINGS 
The  United  States  Supreme  Court 

shall  have  jurisdiction  to  review,  set 

2 


18 

aside  or  modify  any  order  or  judgment 
of  the  National  Court  of  Transporta- 
tion wherein  questions  of  law  are  in- 
volved. The  Supreme  Court  shall  de- 
termine whether  such  appeals  to  it  shall 
be  granted  in  each  case,  and  prescribe 
the  procedure  therefor. 


INTERSTATE  COMMEKCE  COMMISSION 
(To  be  reorganized) 

(a)  EEMOVAL  OF  COMMISSIONERS 

The  commissioners  shall  not  be  re- 
moved during  their  term  of  office,  ex- 
cept by  impeachment  proceedings  in  the 
same  manner  and  for  the  same  causes 
that  United  States  judges  are  im- 
peached. 

(b)  APPELLATE  JURISDICTION 
Any  party  complaining  of  an  order 

or  finding  of  a  state  commission,  which 
may  affect  either  directly  or  indirectly 
interstate  rates,  or  differentials,  pref- 
erences, discriminations,  or  practices 
in  the  operations  of  the  carrier,  or  les- 
sens the  ability  of  the  carrier  to  earn 
the  minimum  dividend  of  five  per  cent, 
on  its  stock,  may  have  such  order  or 
finding  reviewed  by  the  Interstate  Com- 
mission. The  Interstate  Commission 
shall  prescribe  the  method  and  proce- 
dure of  appeal.  It  may  hear  the  matter 
on  the  record  made  before  the  state  com- 
mission, or  it  may  require  additional 
19 


20 

evidence.  Upon  such  hearing  the  Com- 
mission shall  enter  such  order  as  it  may 
deem  just,  if  it  pertains  to  or  affects  di- 
rectly or  indirectly  interstate  com- 
merce ;  but  if  it  finds  that  the  order  of 
the  state  Commission  does  not  affect 
interstate  commerce,  the  appeal  shall 
be  dismissed  and  the  order  appealed 
from  shall  become  final. 

(c)  STATE  COMMISSIONS 

Every  state  Public  Service  Commis- 
sion shall  be  auxiliary  to  the  Interstate 
Commission,  and  shall  have  authority 
to  hear  and  determine  in  the  first  in- 
stance all  questions  of  rates  and  prac- 
tices in  railway  operation,  preferences 
and  discriminations  arising  within 
their  respective  states,  affecting  both 
state  and  interstate  commerce.  The  In- 
terstate Commission  may  refer  any 
proceedings  instituted  before  it  to  the 
State  Commission  having  jurisdiction 
thereof  for  investigation  and  report. 
From  the  orders  of  State  Commissions 
an  appeal  shall  lie  to  the  Interstate 

Commission  by  any  party  aggrieved. 


21 

(d)  GENEEAL  PKINCIPLES 

So  far  as  practicable  the  Commission 
shall  ascertain,  promulgate  and  apply 
in  each  case  general  principles  of  trans- 
portation. As  far  as  practicable  the 
Commission  shall  so  adjust  rates  as  to 
permit  the  movement  of  all  commodi- 
ties that  may  be  offered  for  shipment, 
provided  they  will  yield  a  profit  to  the 
carrier  and  not  materially  interfere 
with  the  movement  of  general  traffic. 

(e)  BUKEAU  OF  STATISTICS 

The  Commission  shall  enlarge  its 
statistical  bureau,  so  as  to  include  all 
the  statistical  work  of  the  National 
Court  of  Transportation.  The  bureau 
shall  issue  monthly  bulletins  showing 
receipts  and  disbursements  of  the  car- 
riers and  changes  in  rates  made  in  that 
month. 

(f)  SUSPENSION  OF  SCHEDULES 

Schedules  of  new  or  changed  rates 
shall  not  be  suspended  for  a  longer 
period  than  ninety  days  in  any  event. 
Whenever  the  Commission  can  not  com- 
plete its  investigations  within  that 


22 

time,  it  shall  provide  a  method  whereby 
the  carrier  shall  refund  to  the  parties 
entitled  any  excess  charges  if  the  rates 
should  not  be  sustained. 

(g)  MINIMUM  BATES 

The  Commission  shall  not  fix  rates  so 
low  that  they  will  not  yield  a  minimum 
of  five  per  cent,  for  stock  dividend  pur- 
poses, after  paying  operating  expenses, 
fixed  and  overhead  charges,  under  effi- 
cient management,  but  may  fix  mini- 
mum rates  not  inconsistent  with  this 
provision. 

(h)  DIFFEKENTIALS 

The  Commission  shall  have  power  to 
determine  and  fix  all  differentials  be- 
tween rates  on  commodities  moving 
from  different  points  to  the  same  mar- 
ket over  different  lines  of  railway. 

(i)  WAGES 

Controversies  over  wages  and  work- 
ing conditions  between  carriers  and 
employees  shall  be  submitted  to  the 
Commission  for  investigation.  After 
making  the  investigation  the  Commis- 
sion shall  make  a  recommendation  as 


23 

to  how  the  controversy  should  be  set- 
tled, specifying  the  details  thereof. 
Pending  the  investigation  the  carrier 
shall  neither  increase  nor  decrease  the 
wages.  Any  understanding  or  agree- 
ment made  between  two  or  more  em- 
ployees to  strike  shall  be  deemed  an 
agreement  in  restraint  of  interstate 
commerce  and  subject  to  the  law  pro- 
hibiting such  agreements.  This  shall 
not,  however,  prohibit  any  individual 
employee  from  resigning  his  position, 
provided  he  has  no  previous  agreement 
or  understanding  to  do  so. 

(j)  POOLING  AEEANGEMENTS 

Any  two  or  more  carriers  may  enter 
into  such  pooling  arrangements  as  they 
may  deem  advisable,  which  shall  be  ap- 
proved by  the  Commission  when  in  its 
opinion  the  public  interest  will  not  be 
prejudiced  thereby. 

( k )  CONFEEENCE  OF  C AEEIEKS 

The  carriers  may  confer  and  agree 
with  each  other  on  their  respective 
schedules  of  rates  to  be  filed  before  the 
Commission,  and  the  same  shall  be 
adopted  and  remain  in  effect  until  com- 


24 

plaint  is  made,  or  changes  made  by  the 
carriers.  In  preparing  such  schedules 
the  Commission  shall  assist  the  car- 
riers in  determining  the  reasonableness 
of  such  rates  in  the  first  instance. 

(1)  COAL  CAKS 

The  carrier  on  whose  line  coal  is 
mined  may  require  a  connecting  carrier 
over  whose  line  the  coal  is  distributed 
to  furnish  an  equitable  proportion  of 
coal  cars  in  which  to  handle  the  traffic. 
Such  equitable  proportion  shall  be  de- 
termined by  the  Commission,  when  the 
carriers  fail  to  agree  among  them- 
selves. 

(m)  DISTEIBUTION  OF  EXCESS 

EAENINGS 

The  Interstate  Commission  shall 
whenever  practicable  so  adjust  non 
competitive  rates  and  fares,  and  the  di- 
vision of  joint  through  rates  between 
strong  and  weaker  railways,  and  the 
compensation  for  the  exchange  and  use 
of  equipment  on  their  respective  lines, 
as  to  favor  the  weaker  roads,  and  lessen 
the  excess  earnings  of  the  more  pros- 
perous carriers  when  such  excess  exists. 


25 

Provided,  however,  That  no  railway 
shall  be  required  to  render  any  service 
that  does  not  yield  some  surplus  over 
the  out-of-pocket  cost  of  handling  the 
particular  traffic. 

(n)   CARRIERS'  COMPENSATION  FOB 
SERVICES  TO  THE  GOV- 
ERNMENT 

Whenever  representatives  of  the 
United  States  Government  fail  to  agree 
with  the  agents  of  the  railways  on  the 
compensation  for  any  services  rendered 
or  to  be  rendered  to  the  government, 
the  Interstate  Commission  shall  fix 
such  compensation  and  the  time  of  its 
payment. 

(o)  AMENDMENTS 

All  Interstate  Commerce  Acts  will  be 
amended  so  as  to  include  the  foregoing 
provisions.  All  acts  inconsistent  with 
these  amendments,  and  with  the  act 
creating  the  National  Transportation 
Court,  shall  be  repealed. 


EXISTING  EVILS  MUST  BE  KEMOVED 

The  railways  of  the  United  States  have  been 
reduced  to  a  condition  that  to  say  the  least  is 
most  deplorable.  Past  railway  financing  and 
operation,  together  with  the  method  of  govern- 
mental regulation  that  has  been  applied  to  the 
carriers  for  the  last  decade  by  both  state 
and  nation,  has  been  such  that  now  our 
whole  transportation  system  seems  on  the 
verge  of  collapse.  Through  a  mistaken  sense 
of  duty  to  the  public  our  public  tribunals 
have  persistently  reduced  the  revenues  to  the 
carriers,  while  at  the  same  time  increased  their 
expenditures,  and  thereby  so  affected  their 
credit  as  to  make  it  impossible  for  them  to  se- 
cure the  capital  necessary  to  supply  them- 
selves with  adequate  facilities  with  which  to 
take  care  of  the  public's  business. 

Under  an  emergency  the  operation  of  the 
carriers  has  been  taken  over  by  the  govern- 
ment while  still  remaining  under  private  own- 
ership. The  Director  General  seeks  to  retain 
the  carriers  for  a  period  of  five  years  after 
peace  has  been  promulgated,  while  the  present 
law  extends  this  control  for  twenty-one 
months  thereafter.  In  the  meantime  the  Con- 

21 


28 

gress  is  receiving  suggestions  in  an  endeavor 
to  formulate  a  plan  for  placing  the  railways 
in  such  a  safe  and  sane  position  that  they  may 
discharge  all  the  functions  of  common  car- 
riers, and  give  to  the  public  an  adequate  and 
efficient  transportation. 

What  should  be  done  with  the  railways  is  a 
question  that  the  Congress  must  answer  by 
appropriate  legislation.  Many  recommenda- 
tions have  been  made  and  many  more  can  rea- 
sonably be  anticipated. 

Any  effective  plan  which  the  Congress  may 
adopt  that  will  meet  the  public  demands  must 
contemplate  the  removal  of  certain  obstacles 
that  have  heretofore  hindered  the  carriers  in 
the  discharge  of  their  duties.  Every  hin- 
drance so  far  as  practicable  should  be  re- 
moved, so  that  the  management  will  have  a 
free  hand  to  render  the  best  possible  service 
to  the  public.  The  carriers  must  be  unham- 
pered by  restrictive  laws,  either  State  or  Fed- 
eral. 

Among  the  Federal  laws  that  restrain  and 
limit  the  action  of  the  carriers  to  the  public 
detriment  are :  the  Sherman  Anti-Trust  Law, 
the  Clayton  Act,  the  Erdman-Newlands  Act, 
the  Employers'  Liability  Act,  the  Adamson 
Law.  The  handicaps  which  these  acts  of  Con- 


29 

gress  place  on  the  carriers  should  be  removed 
by  the  repeal  of  the  statutes  so  far  as  they 
apply  to  railways  and  their  employees.  A 
proper  tribunal  with  full  regulatory  power 
can  correct  the  evils  that  these  laws  were  in- 
tended to  prohibit,  and  such  remedies  will  be 
infinitely  better  for  the  public,  the  carrier 
and  the  employees,  for  they  will  be  both  speedy 
and  equitable  to  all  concerned.  When  the  pub- 
lic welfare  will  be  advanced  thereby  the  regu- 
latory tribunal  will  permit  and  authorize  the 
carriers  to  combine  parallel  competing  lines, 
enter  into  pooling  arrangements,  and  joint 
use  of  equipment  and  terminals,  and  co-oper- 
ate with  each  other.  Every  interest  of  em- 
ployees can  be  better  secured  by  having  such 
interest  protected  by  the  regulating  tribunal 
and  all  their  rights  determined  at  once  than  is 
possible  by  statutory  enactment,  which  re- 
quires a  long  court  process  to  be  enforced. 

State  laws  are  almost  universally  restric- 
tive of  the  powers  of  the  carrier,  and  wherever 
they  can  materially  interfere  in  any  way  with 
the  carrier's  ability  to  give  the  public  an  ef- 
ficient and  equitable  transportation  they  must 
be  set  aside,  for  all  handicaps  and  obstacles 
that  stand  in  the  way  of  an  adequate  and 


30 

speedy  service  must  be  removed.  This  can 
only  be  done  by  Federal  incorporation. 

The  most  vital  evil  that  threatens  the  rail- 
ways is  a  loss  of  credit  brought  about  princi- 
pally by  the  rate  making  powers  refusing  to 
permit  rates  that  will  produce  sufficient  rev- 
enues. The  cure  for  this  evil  is  to  prohibit  the 
Interstate  Commerce  Commission  from  fixing 
rate  schedules  so  low  that  in  normal  times  they 
will  not,  under  efficient  management,  produce 
a  minimum  of  five  per  cent,  per  annum  on  the 
actual  value  of  the  property  to  the  investor. 

With  the  foregoing  evils  out  of  the  way  the 
managers  can  have  no  excuse  for  any  failure 
to  give  the  public  the  most  efficient  transpor- 
tation that  any  country  has  yet  enjoyed. 

That  these  things  may  be  accomplished  and 
the  carriers  required  to  discharge  their  full 
duty  to  the  public,  to  their  security  holders 
and  to  their  employees,  a  strong  independent 
tribunal  must  be  created,  with  full  power  and 
jurisdiction  to  determine  every  question  per- 
taining to  the  subject  of  transportation.  Such 
a  tribunal  I  call  The  National  Transportation 
Court, 


EVILS  TO  BE  EEADICATED 

I 

Present  methods  of  railway  capitalization — 
(a)  Over-issues  of  securities,  by  re-issuing 
stock  on  basis  of  actual  value  of  prop- 
erty. 

II 

State  police  powers  that  affect  adversely  In- 
terstate Commerce,  such  as 

(a)  State  control  over  railroad  charters. 

(b)  State  regulation  of  rates  and  practices. 

Ill 

State  valuation  for  tax  purposes. 

IV 

Existing  railway  financing. 

V 

Present  methods  of  court  review  of  Commis- 
sion's orders. 

VI 
Strikes  of  railway  trainmen  to  be  prevented. 

VII 

Kestrictive   Federal   legislation  will  be   re- 
pealed. 

31 


32 

The  establishment  of  the  plan  herein  sug- 
gested will  secure — 

(1)  A  scientific  and  unified  system  of  trans- 

portation, applicable  alike  to  both 
State  and  Interstate  Commerce. 

(2)  A  stable  and  certain  credit  for  the  rail- 

roads, that  will  enable  them  to  sell 
their  stocks  to  investors  at  not  less 
than  the  par  value. 

(3)  The  elimination  of  all  excess  capitali- 

zation by  having  securities  issues  rep- 
resent the  actual  value  of  the  rail- 
road property,  used  in  conducting 
transportation. 

(4)  A  minimum  return  of  five  per  cent,  per 

annum  to  the  stockholders,  after  pay- 
ing expenses  and  fixed  charges. 

(5)  Skilled  experts — State  and  Interstate 

Commissioners — to  pass  upon  all  rate 
regulation,  preferences,  discrimina- 
tions and  practices  in  railway  opera- 
tions. 

(6)  A  court  review  of  Commission  orders 

limited  exclusively  to  the  Transpor- 
tation Court,  which  will  hear  the  case 
on  the  original  record  made  before 
the  Commission,  without  any  addi- 
tional pleadings  or  evidence. 


(7)  A  settlement  of  all  railway  labor  con- 

troversies by  the  Interstate  Com- 
merce Commission. 

(8)  The  uninterrupted  operation  of  trains 

and  the  prevention  of  strikes. 

(9)  The  Federal  incorporation  of  railways 

and  the  preservation  of  their  identity, 
both  as  to  property  and  management, 
and  security  holders. 

(10)  The  co-operation  of  railways,  by  pool- 

ing arrangements,  consolidations, 
joint  use  of  tracks,  terminals  and 
equipment,  with  the  approval  of  the 
Interstate  Commission,  with  compe- 
tition in  service. 

(11)  The  establishment  of  a  workmen's  com- 

pensation for  injured  railway  em- 
ployees. 

(12)  Federal  tribunals  vested  with  full  reg- 

ulatory power  having  authority  to 
hear  and  determine  every  possible 
question  that  can  affect  railway 
transportation,  with  private  owner- 
ship and  management. 

(13)  An    equitable    distribution    of    excess 

earnings  whenever  such  condition 
may  arise,  by  giving  weaker  roads  a 
greater  share  of  joint  through  rates, 


34 

lowering  noncompetitive  rates,  and  a 
graduated  tax  on  excess  profits. 

(14)  An  expeditious  and  inexpensive  rem- 

edy to  shippers  whereby  they  can 
have  their  complaints  tried  before 
the  State  Commission,  with  appeal  to 
the  Interstate  Commission,  and  reach 
a  final  determination  of  it  within  one- 
third  the  time  and  for  one-fifth  the 
expense  that  is  now  required. 

(15)  Lower  levels  of  rates,  and  efficiency  of 

service. 


NECESSITY  FOR  A  CENTRAL 
AUTHORITY 

Every  successful  enterprise  must  have  in 
some  form  or  other  a  head  to  it  with  supreme 
authority  to  direct  its  activities.  This  is  pe- 
culiarly  true  of  any  plan  that  will  insure  a 
scientific  system  of  transportation.  It  is  im- 
possible to  have  an  efficient  governmental  reg- 
ulation of  the  carriers,  without  the  creation  of 
a  Federal  Tribunal  to  which  all  questions  af- 
fecting transportation,  whether  of  rates,  dis- 
crimnatory  practices,  capitalization  and  fi- 
nance, wages  and  operation  may  be  referred 
for  solution  and  adjustment.  In  the  very  na- 
ture of  the  problems  to  be  solved  such  a  tri- 
bunal will  be  called  upon  to  exercise  both  ju- 
dicial and  administrative  powers,  and  there- 
fore I  am  calling  such  a  tribunal  The  National 
Transportation  Court.  It  will  have  both  orig- 
inal and  appellate  jurisdiction,  in  administra- 
tive as  well  as  judicial  questions  necessary  to 
be  solved.  It  would  possess  original  jurisdic- 
tion in  all  matters  of  (1)  Federal  incorpora- 
tion, (2)  securities  issues,  (3)  extension  of 
lines,  (4)  new  construction,  (5)  removal  of  ex- 
ecutive heads  of  the  carriers  for  inefficient 

35 


36 

management,  (6)  appointment  of  a  member  of 
the  board  of  directors  of  the  carrier  com- 
panies, (7)  ascertainment  of  railway  values 
for  taxation  and  stock  issuing  purposes,  (8) 
establishing  and  administering  a  workman's 
compensation  bureau  for  the  benefit  of  injured 
employees,  (9)  the  reorganization  of  bank- 
rupt carriers,  and  (10)  the  settlement  of  all 
the  questions  growing  out  of  Government  op- 
eration. This  court  would  have  appellate  jur- 
isdiction over  all  the  orders  and  judgments  of 
the  Interstate  Commerce  Commission,  and  its 
finding  thereon  would  be  final  except  in  such 
questions  of  law  as  the  Supreme  Court  might 
determine  that  it  should  review.  In  consider- 
ing the  appeals  from  the  Interstate  Commerce 
Commission  the  National  Transportation 
Court  would  exercise  the  same  judicial  func- 
tions that  the  Federal  courts  may  now  exer- 
cise over  the  orders  and  findings  of  the  Com- 
mission. This  appeal  would  be  the  judicial 
remedy  of  any  party  who  complains  of  the 
Commission's  orders,  and  would  provide  an 
expeditious  method  of  court  review  of  the 
Commission's  findings.  It  would  simplify  and 
expedite  the  court  review  very  greatly,  as  the 
questions  could  be  determined  upon  the  orig- 
inal record  made  before  the  Commission  with- 


37 

out  any  new  pleadings  or  evidence,  and  there- 
by reach  a  final  judgment  within  a  month  or 
two  after  the  Commission's  order  is  entered, 
whereas  under  the  present  law  an  independent 
suit  must  be  brought  in  some  court  and  prose- 
cuted under  regular  court  forms,  involving  the 
making  of  an  entirely  new  record  on  new  evi- 
dence. These  court  proceedings  are  very  ex- 
pensive to  the  parties,  and  are  attended  with 
all  the  delays  incident  to  a  long  and  protracted 
litigation.  Pending  the  period  when  the  case 
is  before  the  court  for  final  judgment  both  car- 
rier and  shipper  are  at  a  loss  as  to  how  to  reg- 
ulate their  business  affairs.  In  addition  to 
doing  away  with  the  expense  and  delay  of 
present  court  proceedings,  by  substituting  a 
speedy  and  inexpensive  appeal  to  the  Trans- 
portation Court,  the  greater  advantage  lies  in 
the  fact  that  the  appeal  will  be  heard  by  a 
tribunal  largely  composed  of  expert  transpor- 
tation men,  already  familiar  with  all  the  law 
and  practices  of  the  transportation  business. 
On  the  other  hand  under  the  present  system 
the  judge  before  whom  a  proceeding  is  brought 
to  enjoin  the  Commission's  order,  is  not  ac- 
quainted with  the  theories  of  rate-making  or 
rate  structures  and  to  a  certain  extent  must 
grope  in  the  dark  for  his  conclusions,  however 


38 

learned  he  may  be  in  the  general  principles  of 
law.  There  is  necessarily  a  great  lack  of  har- 
mony in  the  rulings  of  the  courts  of  original 
jurisdiction,  where  so  many  of  them  in  every 
part  of  the  country  are  called  on  to  solve  these 
transportation  problems  and  as  a  consequence 
a  new  trial  is  generally  had  by  one  side  or  the 
other  taking  appeals  either  to  the  Circuit 
Court  of  Appeal  or  to  the  Supreme  Court,  and 
frequently  to  both. 

It  is  apparent  that  this  long  round-about 
method  of  reviewing  by  the  courts,  the  findings 
of  the  Commission,  involving  as  it  does  so 
much  cost  and  delay,  must  be  superseded  by 
a  shorter  and  simpler  procedure  before  a 
highly  expert  tribunal,  if  the  welfare  of  both 
public  and  carriers  is  to  be  protected. 

The  power  to  supervise  and  correct  the 
orders  of  the  Commission,  and  thereby  cen- 
tralize in  one  tribunal  the  whole  scope  of  court 
review,  as  well  as  to  fix  the  general  principles 
upon  which  rate  structures  should  be  based, 
and  transportation  conducted,  must  be  exer- 
cised by  one  central  tribunal  before  it  is  pos- 
sible to  have  a  unified  system  of  transporta- 
tion. 

This  tribunal  will  also  have  in  the  last  anal- 
ysis supervision  and  appellate  jurisdiction 


39 

over  all  State  action  that  in  any  way  material- 
ly affects  the  national  transportation.  All 
State  powers  over  the  instrumentalities  used 
in  interstate  transportation  will  be  made  to 
harmonize  and  co-operate  with  the  Federal 
scheme  of  regulation,  so  that  the  whole  can  be 
molded  into  one  scientific  unified  system.  This 
harmony  can  be  brought  about  in  a  very  sim- 
ple and  easy  way  by  providing  that  appeals 
may  be  taken  from  the  findings  of  State  Com- 
missions to  the  Interstate  Commission  on  all 
rulings  that  affect  either  directly  or  indirectly 
interstate  commerce.  In  this  way  all  the 
State  Commissions  can  act  as  subsidiary  or- 
ganizations to  the  Interstate  Commission  to 
whom  cases  brought  in  the  first  instance  be- 
fore the  Interstate  Commission  may  be  re- 
ferred to  the  State  Commission  for  investiga- 
tion and  report.  This  procedure  would  result 
in  a  harmonious  action  of  all  regulating  tri- 
bunals, State  and  Federal.  State  tribunals 
would  be  part  and  parcel  of  the  unified  system 
of  Federal  regulation  operating  under  na- 
tional law.  This  would  eliminate  all  ques- 
tions of  conflicting  powers,  and  divergent  find- 
ings which  heretofore  have  been  a  great  men- 
ace to  both  the  public  and  the  carriers,  result- 
ing in  favoritisms  and  discriminations. 


40 

Under  the  plan  proposed  the  powers  of  the 
Interstate  Commerce  Commission  would  ex- 
tend to  (1)  all  rate  making  and  rate  regula- 
tion including  differentials;  (2)  approval  of 
railway  consolidations  and  joint  operation  of 
parallel  competing  lines;  (3)  approval  of 
pooling  agreements  between  the  carriers; 
(4),  directing  and  regulating  the  joint  use  of 
terminals;  (5),  the  prevention  of  unreason- 
able preferences  and  discriminations;  (6), 
adjust  all  questions  of  interchange  of  traffic 
between  the  carriers  including  the  pro  rata 
share  for  joint  through  traffic;  (7),  hear  and 
determine  all  matters  of  wages  and  working 
conditions  of  employees  in  controversies  con- 
cerning them,  and  (8) ,  hear  and  determine  all 
appeals  from  State  Commissions. 

In  any  system  of  railway  regulation  that 
may  be  devised  it  will  be  necessary  to  provide 
the  legal  machinery  with  which  it  can  be  di- 
rected and  made  effective.  This  machinery 
should  not  be  complicated  nor  difficult  to  un- 
derstand. It  should  be  plain  and  simple,  and 
at  the  same  time  have  the  power  to  solve 
speedily  and  wisely  every  practical  problem 
and  question  pertaining  to  transportation.  It 
is  earnestly  insisted  that  the  machinery  sug- 
gested is  adequate  for  that  purpose.  The 


41 

State  Commissions  will  be  preserved  and  their 
expert  knowledge  and  ability  will  be  used  in 
aid  of  a  unified  system  of  Federal  regulation 
without  becoming  a  menace  to  it  as  heretofore. 
There  will  be  a  commission  on  the  ground,  rep- 
resenting both  intrastate  and  interstate  inter- 
ests, under  an  appellate  supervision  of  Fed- 
eral authority.  All  evidence  may  be  taken  be- 
fore them  in  the  first  instance,  which  will  not 
only  facilitate  the  hearing,  but  will  do  away 
with  the  necessity  of  sending  out  special  ex- 
aminers who  are  often  poorly  equipped  for  the 
business  in  hand.  Under  the  present  practice 
the  evidence  in  a  large  number  of  cases  before 
the  Interstate  Commission  is  taken  in  Wash- 
ington, requiring  high-priced  experts  and 
counsel  to  come  across  the  continent  and  re- 
main for  weeks  and  months  at  a  time.  It  can 
reasonably  be  anticipated  that  in  practice 
there  would  be  no  appeal  taken  from  a  great 
number  of  the  findings  of  the  State  Commis- 
sions, even  though  they  did  involve  interstate 
questions,  for  the  National  Transportation 
Court  would  so  systematize  all  transportation 
business  that  the  State  Commissions  would 
be  guided  by  the  rules  promulgated  by  this 
court  of  last  resort. 

The  National  Transportation  Court,  with 


42 

its  original  and  appellate  jurisdiction ;  the  In- 
terstate Commerce  Commission  having  both 
original  and  appellate  jurisdiction,  and  the 
State  Commissions  having  certain  original 
jurisdiction,  constitute  all  the  machinery  re- 
quired to  put  into  operation  and  maintain  an 
adequate  system  of  transportation. 

By  the  creation  of  these  three  tribunals  and 
linking  them  together  in  a  harmonizing  co- 
operation, the  evils  which  have  driven  the 
country's  transportation  into  a  state  of  col- 
lapse will  entirely  disappear. 

It  would  be  interesting  to  know  how  great 
has  been  the  evil  and  how  much  it  has  cost  the 
public  directly  and  indirectly,  that  has  re- 
sulted from  the  States'  efforts  to  control  the 
railways  and  regulate  commerce.  Let  us  be 
generous  in  our  estimates  of  the  motives  back 
of  this  general  purpose  and  say  that  in  most 
instances  it  was  the  expression  of  an  honest 
purpose  to  correct  inequalities  either  real  or 
imaginary. 

The  fixing  of  unreasonably  low  passenger 
rates  by  legislative  enactment,  changing  the 
common  law  liability  for  the  acts  of  fellow 
servants,  requiring  duplicate  train  crews,  lia- 
bility for  killing  stock  regardless  of  negli- 
gence, progressive  increase  of  taxation,  per- 


43 

sistent  reduction  of  local  rates,  and  many 
other  restrictive  and  oppressive  obstacles 
thrown  in  the  way  of  the  carriers,  have  been 
the  rule  of  State  action  heretofore.  These 
have  all  tended  to  render  the  carrier  less  able 
to  discharge  its  full  duty  to  the  public,  and 
the  public  have  suffered  and  are  now  suffering 
the  consequences  of  these  mistakes,  for  we 
have  to  pay  the  bills  no  matter  what  happens. 
Congressional  action  has  been  more  restric- 
tive than  liberal  toward  the  carriers,  greatly 
increasing  their  troubles  and  their  expenses 
without  giving  them  any  corresponding  bene- 
fits. Both  State  and  Federal  laws  have  denied 
to  the  carriers  the  right  to  co-operate  not  only 
for  their  mutual  benefit,  but  for  the  benefit  of 
the  public,  and  have  forced  them  into  useless 
and  wasteful  competition  that  has  cost  many 
millions  of  dollars  each  year,  and  compelled 
expensive  and  inadequate  service.  If  we  add 
to  the  evils  above  enumerated  the  extremely 
high  cost  of  doing  their  financing  in  the  last 
ten  years  in  the  way  of  commissions,  discounts 
and  bonuses,  in  order  to  secure  the  money  re- 
quired in  their  operation,  it  should  occasion 
no  surprise  that  the  carriers  are  now  in  such 
a  state  of  confusion  and  despair  that  they  will 
utterly  collapse  unless  something  is  soon  done 


44 

to  remove  these  forces  that  are  uniting  to 
drive  them  into  bankruptcy.  And,  the  conse- 
quences flowing  from  such  a  disaster  must  be 
borne  by  the  public. 

The  experience  of  the  last  two  years  affords 
conclusive  proof  that  railways  cannot  per- 
form their  functions  as  common  carriers,  un- 
less the  Congress  removes  all  these  obstacles, 
and  places  them  in  a  position  where  they  will 
have  the  financial  and  physical  ability  to  per- 
form every  service  which  the  public  interest 
may  require.  Without  equipment  and  termi- 
nal and  trackage  facilities,  and  necessary  ex- 
tensions, the  carriers  can  no  more  do  their 
work  efficiently  than  a  man  may  do  his  with 
his  hands  tied.  But  it  requires  money,  and 
vast  sums  of  it,  to  secure  these  things,  and  the 
carrier  can  procure  money  in  only  one  of  two 
ways,  viz :  either  out  of  surplus  earnings,  or 
selling  securities.  Very  few  if  any  of  the  rail- 
ways can  earn  enough  surplus  to  meet  these 
demands,  and  consequently  they  must  resort 
to  stock  sales  with  which  to  supply  the  neces- 
sary capital.  But  unless  they  are  practically 
certain  of  earning  enough  to  pay  a  five  per 
cent,  minimum  dividend  on  their  stock  they 
cannot  sell  it  except  at  a  ruinous  discount. 
The  public  must  suffer  by  a  failure  of  the  car- 


45 

riers  to  do  their  full  duty,  and  they  cannot  per- 
form their  duty  unless  they  can  secure  neces- 
sary capital,  and  they  will  never  be  able  to  get 
the  necessary  capital  until  the  Congress  re- 
moves their  shackles.  We,  the  public,  are 
more  interested  in  having  an  adequate  rail- 
way service  than  in  any  other  factor  in  our  in- 
dustrial life.  If  we  are  to  prosper  we  must 
have  a  dependable  transportation  system,  for 
without  it  we  cannot  know  how  to  produce  or 
buy  or  sell,  or  arrange  our  ordinary  business 
affairs.  Give  us  the  most  efficient  transporta- 
tion system  that  is  possible,  and  the  public  are 
willing  and  anxious  to  pay  whatever  is  neces- 
sary to  secure  it.  Give  the  carriers  the  power 
to  serve  the  public,  and  a  Federal  tribunal  the 
power  to  require  them  to  do  it  whenever  they 
hesitate  or  fail  to  perform  their  functions. 

Additional  Regulating  Bodies 

Any  plan  for  the  reorganization  of  our 
transportation  system  which  the  Congress 
may  adopt  will  have  to  provide  tribunals  or 
commissioners  that  can  determine  the  infinite 
variety  of  questions  that  will  arise  from  day 
to  day.  The  solution  of  these  problems  should 
not  be  postponed  any  longer  than  is  necessary 
to  take  the  evidence  and  present  argument. 


46 

No  tribunal  should  be  so  congested  with  busi- 
ness that  it  could  not  take  up  and  speedily  dis- 
pose of  the  matters  that  come  before  it.  It  is 
apparent  that  no  one  commission  or  court 
could  have  the  time  to  hear  and  decide  these 
controversies  as  they  arise.  All  the  plans  that 
have  been  laid  before  the  Senate  Interstate 
Commerce  Committee  contemplate  new  aids 
and  helps  to  the  Interstate  Commission.  The 
witnesses  all  realize  that  the  work  to  be  done 
would  be  much  more  than  the  Commission 
could  possibly  perform.  Some  have  recom- 
mended that  a  number  of  subsidiary  Commis- 
sions be  organized  throughout  the  country 
with  jurisdiction  over  transportation  ques- 
tions that  arise  in  their  respective  districts. 
The  carriers  have  suggested  that  a  Secretary 
of  Transportation  be  appointed  as  a  member 
of  the  Cabinet  with  very  extensive  authority, 
in  addition  to  the  Interstate  Commission. 
These  various  suggestions  have  been  made 
under  a  belief  that  amounts  to  positive  knowl- 
edge that  no  one  tribunal  could  do  the  work 
that  will  be  required.  Provision  for  a  court 
review  of  the  orders  of  the  Interstate  Commis- 
sion will  have  to  be  made.  This  review  should 
be  made  speedily  by  a  body  of  experts  exercis- 
ing judicial  powers  rather  than  by  the  regular 


47 

law  judges  sitting  as  a  court  and  not  expert  in 
transportation  questions.  The  cost  and  delay 
of  bringing  these  cases  to  a  final  judgment  in 
the  ordinary  legal  procedure  under  the  pres- 
ent method  should  be  a  sufficient  reason  for 
the  creation  of  a  Transportation  Court  before 
which  all  the  orders  of  the  Interstate  Commis- 
sion would  have  to  go  for  court  review  when 
anyone  sought  to  invoke  that  remedy.  This 
method  of  appeal  to  the  Transportation  Court 
would  divest  the  inferior  United  States  Courts 
of  their  present  jurisdiction  over  these  mat- 
ters, and  bring  them  all  to  one  tribunal  that 
could  decide  them  along  the  lines  of  a  unified 
system  of  transportation  of  which  it  would  be 
the  head  and  directing  force.  In  addition  to 
exercising  appellate  powers,  and  court  review 
over  the  orders  of  the  Interstate  Commission 
the  Transportation  Court  would  have  original 
jurisdiction  over  all  railway  financing,  Fed- 
eral incorporation,  securities  issues,  exten- 
sions and  new  lines,  reorganization  of  bank- 
rupt properties,  settlement  of  questions  be- 
tween the  Government  and  the  carriers  grow- 
ing out  of  Government  operation ;  to  require 
carriers  to  install  and  maintain  an  efficient 
service,  and  supervise  the  workman's  compen- 
sation bureau.  The  Court  of  Transportation, 


48 

the  Interstate  Commerce  Commission,  and  the 
State  Commissions  would  have  all  they  could 
reasonably  do  to  properly  regulate  the  rail- 
way and  water  transportation  of  the  United 
States.  This  plan  will  provide  all  the  machin- 
ery that  will  be  required  to  place  the  system 
into  operation  and  keep  it  in  the  best  working 
condition,  and  at  the  same  time  it  will  be 
neither  complex  nor  difficult,  but  will  be  plain, 
simple  and  especially  expeditious.  It  will  have 
the  advantage  over  other  plans  that  have  been 
offered,  in  that  it  will  be  able  to  work  out  and 
maintain  a  unified  and  harmonious  system  of 
transportation  for  the  whole  country. 


EAILWAY  FINANCING 

The  history  of  railway  building  in  the 
United  States  is  mainly  a  chronicle  of  the  ef- 
forts of  the  ablest  pioneers  in  the  country's  de- 
velopment to  secure  capital  with  which  to 
carry  on  their  enterprises.  Money  was  not 
plentiful  nor  was  credit  widely  extended.  The 
only  practical  way  whereby  capital  could  be 
secured  for  any  large  construction  program 
was  to  hold  out  to  the  investor  the  prospect  of 
large  profits.  In  order  to  sell  bonds  secured 
by  mortgage  over  the  property,  it  became  nec- 
essary to  issue  to  the  purchaser  of  a  bond  a 
stock  bonus  equal,  and  often  greater,  in 
amount  than  the  face  value  of  the  bond.  The 
inducement  to  the  investor  was  the  expecta- 
tion of  a  large  profit  to  be  realized  out  of  the 
increased  value  of  the  stock  to  be  brought 
about  by  a  successful  operation  of  the  road 
after  its  construction  was  completed.  Prior 
to  1900  most  of  the  railways  were  originally 
constructed  by  this  method  of  raising  the  nec- 
essary capital.  Most  of  the  railways  of  the 
United  States  owe  their  beginning  and  origi- 
nal construction  to  a  policy  of  issuing  to  the  in- 
vestor large  blocks  of  watered  stock.  It  was  a 

49 
4 


50 

system  of  financing  based  on  necessity,  and  to 
this  system  we  owe  in  a  large  measure  the 
marvelous  development  of  our  resources  that 
took  place  in  the  last  half  of  the  nineteenth 
century.  The  investor  was  moved  to  part  with 
his  money  by  the  expectation  of  a  large  return 
in  the  shape  of  profits.  Eailway  investments 
were  precarious,  and  attended  by  great  risks, 
owing  to  the  fact  that  most  of  the  lines  had  to 
go  into  bankruptcy  and  reorganization  involv- 
ing tremendous  losses  to  the  original  inves- 
tors. Their  expectation  of  great  profits  did 
not  always  materialize,  and  they  suffered 
losses  instead  of  realizing  profits.  The  pres- 
ent holders  of  railway  securities  are  actuated 
by  the  same  motives  as  their  predecessor  in- 
vestors— namely,  the  expectation  of  profit. 
And  any  future  investor  will  be  moved  by  pre- 
cisely the  same  consideration,  to-wit:  profit. 
It  has  been  estimated  that  the  carriers  will 
require  in  the  next  five  or  six  years  an  addi- 
tional expenditure  of  ten  billions  of  dollars  in 
order  to  rehabilitate  their  properties  and  place 
them  in  a  position  to  properly  move  the  traffic 
that  will  be  offered  them  under  normal  condi- 
tions. That  enormous  sums  of  money  for  this 
purpose  must  be  supplied  in  the  immediate  fu- 
ture is  admitted  by  all.  To  raise  these  colossal 


51 

sums  almost  at  once  is  an  imperative  neces- 
sity, for  it  is  a  condition  precedent  to  any  ef- 
ficient system  of  transportation  that  may  be 
devised.  Where  is  it  coming  from,  and  how 
can  it  be  secured?  There  are  those  who  be- 
lieve that  the  Government  should  either  fur- 
nish the  money  out  of  its  own  treasury  or  lend 
its  credit  through  which  the  money  could  be 
procured.  These  persons  do  not  seem  to  real- 
ize that  for  many  years  to  come  the  taxpayers 
will  have  to  bear  very  heavy  burdens  to  main- 
tain the  financial  integrity  of  the  conutry  on 
the  obligations  that  the  Government  has  al- 
ready incurred.  The  Government's  outstand- 
ing obligations  together  with  billions  yet  to  be 
issued,  have  already  impaired  its  credit,  for 
its  bonds  are  now  selling  in  the  open  market 
at  a  discount  of  seven  or  eight  per  cent.  It 
would  be  very  unwise  to  impose  upon  the  Gov- 
ernment the  further  obligation  of  providing 
capital  for  the  carriers  by  assessing  the  tax- 
payers, when  the  Congress  can  enable  the  car- 
riers to  secure  their  own  money  on  as  favor- 
able terms  as  those  by  which  the  Government 
can  secure  it. 

Whatever  new  money  the  carriers  may  re- 
quire can  be  and  should  be  provided  by  invest- 
ors purchasing  the  carriers'  securities. 


52 

The  future  investor  being  no  different  from 
those  either  of  the  present  or  the  past,  can 
only  be  tempted  to  part  with  his  money  by  a 
reasonable  expectation  that  his  investment 
will  be  profitable.  Under  the  present  laws, 
both  State  and  Federal,  any  investment  in 
railway  securities  is  attended  with  great  risk 
of  loss,  and  for  whatever  small  amounts  the 
carriers  can  secure,  even  for  renewal  purposes, 
they  have  to  pay  an  exceedingly  high  rate  of 
interest  and  ruinous  discounts  and  commis- 
sions. 

If  the  President  should  turn  the  roads  back 
to  their  owners  without  any  legislation  of 
Congress,  and  leave  them  as  they  were  before 
the  Government  took  charge  of  them,  it  would 
be  impossible  for  most  of  them  to  sell  their  se- 
curities for  new  money  and  we  would  have  a 
disabled  service  and  ultimate  bankruptcy.  Let 
us  bear  in  mind  that  it  is  just  as  necessary  to 
the  public  welfare  that  investors  should  pur- 
chase large  amounts  of  railway  securities  in 
the  immediate  future  as  it  is  to  have  the  trains 
operated  now.  It  is  expedient,  therefore,  that 
some  plan  be  devised  and  put  into  operation  at 
an  early  date  whereby  investors  will  feel  jus- 
tified in  purchasing  new  issues  of  railway 
stocks. 


53 

There  are  two  essential  factors  that  influ- 
ence those  who  have  money  to  invest — the  ele- 
ment of  safety  and  risk,  and  the  prospect  of 
profits  over  and  above  the  usual  interest  re- 
turn on  the  sum  invested.  The  security  of  an 
investment  reduces  profit  expectations.  As 
the  security  is  lessened,  there  must  be  a  corre- 
sponding expectation  of  increased  profits  over 
and  above  interest  returns.  The  most  attrac- 
tive stock  that  can  be  offered  to  an  investor  is 
one  with  a  fixed  minimum  dividend  that  is  cer- 
tain, or  as  near  as  human  foresight  can  make 
it  with  a  reasonable  prospect  that  the  dividend 
can  be  increased  by  efficient  management  of 
the  property.  If  a  plan  should  be  adopted 
Avhereby  the  carriers  could  be  compelled  to 
earn  for  their  shareholders  a  certain  dividend, 
at  least  of  five  per  cent,  per  annum,  this  would 
make  the  investment  absolutely  safe  as  to 
principal,  and  sure  for  a  reasonable  interest 
or  dividend  return.  Add  to  this  the  sanguine 
expectation  of  a  profit  in  the  way  of  increased 
dividends,  and  the  investor  would  feel  that  a 
railway  stock  was  the  most  attractive  pur- 
chase that  he  could  possibly  make.  With  this 
character  of  stock  to  offer  the  public,  the  prob- 
lem of  railway  financing  would  be  solved. 
Such  securities  would  be  almost  as  current  as 


54 

a  TJank  note.  It  would  be  the  safest  possible 
investment  for  savings  banks,  insurance  com- 
panies, and  trustees  and  executors,  and  espe- 
cially for  all  those  who  are  not  in  active  busi- 
ness but  depending  for  their  living  upon  small 
incomes.  This  stock  would  be  the  very  best 
kind  of  collateral  for  bank  loans.  This  char- 
acter of  stock  can  be  issued  by  the  railway 
companies  in  the  following  manner,  viz : 

All  the  carriers  will  take  out  Federal  char- 
ters of  incorporation  from  the  National  Court 
of  Transportation.  The  present  companies, 
whose  charters  were  issued  under  State  au- 
thority, would  convey  and  transfer  all  their 
property  to  the  Federal  corporation  having 
the  same  name.  As  a  consideration  for  the 
property  so  taken  over  the  Federal  Corpora- 
tion would  agree  to  pay  or  take  care  of  all  out- 
standing obligations  of  the  present  company 
as  they  matured,  and  in  addition  to  the  as- 
sumption of  these  debts  the  Federal  Corpora- 
tion would  issue  to  the  existing  stockholders 
its  own  stock  at  par,  in  payment  for  their  stock 
based  upon  an  actual  value  which  would  be 
ascertained  and  fixed  by  the  National  Trans- 
portation Court.  The  present  State  corpora- 
tions would  be  dissolved  and  all  their  stock 
issues  cancelled.  All  stock  issues  of  the  Fed- 


55 

eral  corporation  would  be  approved  by  the 
Transportation  Court,  and  would  yield  a  min- 
imum dividend  to  the  stockholders  of  five  per 
cent,  per  annum.  The  law  would  provide  that 
rate  schedules  should  not  be  fixed  so  low  as 
to  prevent  the  carrier  from  earning  a  mini- 
mum dividend  of  five  per  cent,  under  an  ef- 
ficient management.  The  Transportation 
Court  would  have  the  power  to  require  a 
change  of  management  for  inefficiency. 

It  can  be  readily  seen,  when  fully  under- 
stood, that  there  are  no  real  difficulties  in  the 
way  to  prevent  the  adoption  of  this  plan. 

FEDEKAL  INCOKPOKATION 

In  the  exercise  of  its  supreme  authority 
over  interstate  commerce  the  Congress  can 
provide  a  method  for  the  incorporation,  under 
Federal  law,  of  all  interstate  carriers.  The 
advantages  of  operating  under  a  Federal  char- 
ter of  incorporation,  instead  of  State  charters, 
are  very  great.  Among  the  many  reasons  the 
following  may  be  mentioned : 

(1)  Every  carrier  would  have  the   same 

powers  and  would  be  subject  to  su- 
pervision by  the  same  authority  and 
tribunal. 

(2)  There  would  be  a  central  Federal  bodv 


56 

to  approve  and  authorize  all  stock 
issues.  This  would  give  to  the  invest- 
ing public  the  assurance  that  every 
share  of  outstanding  stock  repre- 
sented an  actual  cash  value  that  had 
gone  into  the  property.  In  most  of 
the  states  the  carriers  are  compelled 
to  pay  to  the  State  large  sums  of 
money  for  the  privilege  of  making 
new  stock  issues,  or  bond  issues,  and 
where  a  railway  runs  through  several 
states,  these  fees  amount  to  very 
large  sums.  The  delay  in  securing 
authority  for  new  stock  or  bond  is- 
sues from  a  number  of  states  is  par: 
ticularly  serious,  in  view  of  the  fact 
that  the  company's  financing  must  be 
postponed  until  all  the  States  have 
given  their  consent. 

(3)  The  cost  of  paying  annual  charter  fees 

to  the  States  through  which  the  road 
is  located  is  quite  an  item  of  expense 
that  would  be  saved  to  a  Federal  cor- 
poration. 

(4)  A  very  great  saving  would  be  made  in 

taxation  by  having  the  Federal  tri- 
bunal fix  the  values  of  railway  prop- 
erty for  the  purposes  of  State  taxa- 


57 

tion.  Upon  the  values  so  fixed  the 
State  taxing  authorities  would  levy 
the  same  rate  as  they  would  impose 
on  other  tangible  property  within 
their  respective  taxing  districts. 
This  would  also  eliminate  all  the  cost 
and  expense  which  the  carriers  now 
incur  each  year  by  making  out  re- 
ports for  taxing  boards,  and  attend- 
ing hearings,  and  prosecuting  suits 
and  proceedings  for  the  correction  of 
illegal  assessments.  State  authori- 
ties are  prone  to  place  a  much  higher 
value  upon  the  property  of  a  foreign 
corporation  than  upon  local  property,, 
for  the  purposes  of  taxation.  This 
practice  has  become  very  unjust.  In 
recent  years  a  large  part  of  the  time 
of  the  Supreme  Court  has  been  taken 
up  in  investigating  these  evils  and  at- 
tempting to  correct  them.  The  case 
of  Southern  Kailway  Co.  vs.  Greene, 
216  U.  S.  400,  and  later  cases  further 
emphasize  this  habit,  of  which  the 
following  are  in  point : 

Cheney  Brothers  Co.  vs.  Massachu- 
setts ( 1918),  246  U.  S.  147; 

Lake     Iron     Co.     vs.     Wakefield 


58 

(1918),  247  U.  S.  350;  and  many 
others  decided  at  the  same  term 
of  court. 

The  taxes  on  railways  have  in- 
creased so  rapidly  in  the  last  three  or 
four  years  that  it  has  become  a  seri- 
ous menace  to  the  revenues  of  the  car- 
riers. The  taxes  on  class  1  roads  for 
the  year  1917  increased  over  1916 
from  $157,000,000  to  $214,000,000, 
which  was  thirty-seven  per  cent,  in 
one  year,  while  the  net  operating  in- 
come for  the  same  period  decreased 
$114,000,000,  or  about  eleven  per  cent. 
With  net  revenues  falling  at  the  rate 
of  eleven  per  cent,  and  taxes  increas- 
ing at  the  rate  of  thirty-seven  per 
cent,  and  operating  expenses  increas- 
ing twenty  per  cent.,  it  is  no  wonder 
that  railway  credit  is  impaired.  The 
taxes  for  1917  were  more  than  fifty 
per  cent,  of  all  interest  requirements 
on  the  railway  bonded  debt,  and  the 
taxes  were  almost  equal  to  all  the 
dividends  declared  that  year  by  these 
companies. 

The  following  table   of  comparisons  will 
show  how  absurd  are  the  methods  in  vogue 


59 

for  taxing  railways.  The  N.  &  Y.  &  S.  &  W. 
Eailway  Company  paid  $172,000  in  taxes,  with 
its  net  income  of  $241,000 ;  while  the  P.  &  W. 
Va.  Eailroad  Company  had  a  net  income  of 
$1,030,000,  and  paid  $88,000  in  taxes.  The 
Great  Northern  had  a  net  income  of  $23,021,- 
000,  and  paid  $6,297,000  taxes;  while  the  C., 
M.  &  St.  Paul  paid  $6,517,000  in  taxes,  and 
had  a  net  income  of  $4,605,000 : 

Net 


Name  of  Company 
Detroit,  Toledo  &  Ironton 
C  I  &  W  

Miles 
502 
321 

Income 
$163,000 
225,000 

Taxes 
$96,000 
129,000 

Ann  Arbor  

295 

69,000 

157,000 

Atlantic  City             .  .    . 

177 

195,000 

153,000 

Det  G  H.  &  M    

190 

1,000 

41,000 

N.  Y.  S.  &  W  

135 

24,000 

172,000 

K&M             

170 

1,158,000 

280,000 

L  &  N.  E  

296 

896,000 

230,000 

C.  T.  &  S.  E  

374 

501,000 

235,000 

Rutland  

454 

547,000 

253,000 

Cin.  Northern    

245 

290,000 

129,000 

C   P   in  Maine  

233 

55,000 

114  000 

Lehigh  &  H  

96 

352,000 

98,000 

Monongahela    

108 

2,000 

37000 

Port  Leading   

21 

47,000 

103  000 

Atl.  &  St.  Lawrence  .... 
D   T   Short  Line  

166 

80 

00,000 
291,000 

136,000 
95000 

Buffalo  &  Susquehanna  . 
Pittsburg  &  W.  Va  
Port  Reading  . 

252 
63 
21 

657,000 
37,000 
47.000 

112,000 
23,000 
103.000 

60 

COMPARISON  OF  LEADING  COMPANIES 

Net 

Name  of  Company  Miles        Income  Taxes 

Penna.  R.R 4541    $39,548,000  $9,612,000 

N.  Y.  C 6079     25,599,000  12,123,000 

B.  &  0 4723       8,095,000  4,455,000 

N.  Y.  N.  H.  &  H 1905       2,404,000  3,336,000 

P.  C.  C.  &  St.  L 2398       5,740,000  3,197,000 

Erie    ; 1989       1,820,000  2,377,000 

Phil.  &  R 1126       8,548,000  2,036,000 

Union  Pacific 3622     37,605,000  4,543,000 

C.  M.  &  St.  Paul 10256       4,605,000  6,517,000 

Chicago  &  N.  W 18108      17,125,000  5,677,000 

Great  Northern  8230     23,021,000  6,297,000 

Northern  Pacific   6522     29,502,000  6,910,000 

Under  Federal  incorporation  all  these 
troubles  of  tax  inequalities  and  ex- 
cesses would  be  done  away  with  and 
railroads  would  pay  only  their  equi- 
table share  of  taxation,  along  with 
other  property.  It  is  manifestly  un- 
just that  the  people  of  Ohio  and  West 
Virginia  should  be  compelled  to  pay  a 
higher  price  for  their  transportation, 
in  order  to  enable  the  carrier  to  meet 
excessive  tax  assessments  levied  by 
other  States.  Under  Federal  incor- 
poration the  carrier  would  have  no 
concern  with  State  authorities  about 


61 

its  taxes  except  to  check  over  and 
verify  the  totals. 

(5)  The  power  of  State  Commissions  to 
hamper  and  embarrass  interstate 
commerce  would  be  ended.  All  their 
power  for  evil  would  be  gone  while 
their  experience  and  ability  can  be 
used  to  aid  the  national  system  of 
transportation  instead  of  placing 
serious  obstacles  in  its  way  as  hereto- 
fore. Their  activities  will  be  greatly 
extended  along  lines  that  will  be  a 
strong  support  to  the  national  sys- 
tem. They  will  hear  the  evidence  and 
enter  their  findings  in  the  first  in- 
stance in  most  of  the  controversies 
that  will  arise  affecting  interstate 
commerce.  Such  cases  of  course  will 
be  subject  to  review  by  the  Interstate 
Commission  and  in  this  way  harmony 
of  rulings  and  orders  can  be  pre- 
served. The  State  Commissions  to 
all  intents  and  purposes  will  be 
changed  into  national  tribunals  and 
governed  by  the  Federal  law  of  rail- 
way regulation  in  all  matters  that 
may  come  before  them  affecting  inter- 
state commerce.  Federal  incorpora- 


62 

tion  of  carriers  is  the  only  way  by 
which  State  and  Federal  Commis- 
sions can  be  made  to  co-operate  in 
maintaining  a  single  unified  system 
of  transportation. 

( 6 )  A  large  number  of  States  have  reserved 
the  right  to  their  legislatures  to  alter 
or  amend  the  corporate  charters 
which  they  have  authorized  to  be  is- 
sued. And  all  the  states,  I  believe, 
have  provisions  whereby  the  charters 
they  have  issued  may  be  forfeited  by 
appropriate  proceedings. 
The  carriers  are  now  all  operating 
under  charters  granted  by  the  States, 
which  are  subject  to  be  amended  or 
changed  or  even  forfeited  by  State 
authority.  They  are  the  creatures  of 
the  State  and  the  Supreme  Court  has 
decided  that  the  State  has  the  right 
to  control  them  according  to  all  the 
limitations  and  conditions  of  the  law 
under  which  they  were  granted. 

International  and  G.  N.  Ewy.  Co. 
vs.  Anderson  County  (1918),  246 
U.S.  424; 

Kansas  City,  &c.  Kwy.  Co.  vs.  Stiles 
(1916),  242  U.  S.  Ill; 


Kailroad  Co.  vs.  Maryland  (1875), 
21  Wall  456. 

Under  the  reserved  power  to  change  or 
amend  corporate  charters  a  State 
Legislature  could  make  such  changes 
and  amendments  as  would  seriously 
jeopardize  not  only  the  integrity  of 
their  securities,  but  their  power  to 
perform  their  corporate  functions. 
The  Federal  authorities  cannot  take 
this  power  away  from  the  States,  and 
as  long  as  the  carriers  must  operate 
under  State  charters,  they  will  be 
under  State  authority  so  far  as  their 
corporate  organization  is  concerned. 
The  right  to  issue  stock  or  bonds  and 
prescribe  the  purposes  for  which  they 
may  be  sold,  and  the  price  which  they 
must  bring,  will  be  under  the  exclu- 
sive control  and  jurisdiction  of  the 
States. 

Many  and  serious  have  been  the  threats 
made  by  State  authorities  to  forfeit 
railway  charters,  and  have  receivers 
appointed  to  take  charge  of  the  prop- 
erty. A  corporation  chartered  by 
one  State  will  be  permitted  to  do  busi- 
ness in  another  State  only  by  comply- 


64 

ing  with  the  laws  of  that  State  re- 
specting foreign  corporations.  These 
laws  are  generally  very  exacting  and 
difficult  to  obey  by  carriers  operating 
in  several  States.  If  the  conditions 
are  not  strictly  complied  with  the 
permit  to  do  business  may  be  with- 
drawn, and  the  carrier  will  become 
a  legal  outlaw,  and  although  its  line 
of  railway  extends  from  one  end  of 
the  State  to  the  other,  it  cannot  law- 
fully do  the  business  of  a  common 
carrier.  These  are  not  imaginary 
evils  nor  do  they  produce  only  imag- 
inary troubles.  As  long  as  they  exist 
they  will  be  real  obstacles  and  ever 
present  menaces  to  the  ability  of  the 
carrier  to  properly  serve  the  public. 
Why  keep  these  manacles  on  the  car- 
riers since  they  can  do  no  possible 
good,  and  can  only  result  in  harm? 
Federal  incorporation  would  remove 
every  complication  and  perplexity 
that  could  possibly  arise  by  virtue  of 
State  authority  over  State  charters 
of  incorporation. 


65 

POLICE  POWER 

(7)  One  of  the  most  extensive  powers  that 
is  possessed  by  the  States  is  known 
as  their  Police  Power.  The  full  ex- 
tent of  this  power  has  never  been  pre- 
cisely defined  by  either  State  or  Fed- 
eral Courts.  The  Supreme  Court  has 
often  named  the  general  subjects  that 
the  State  may  deal  with  under  the  ex- 
ercise of  this  authority,  including 
such  matters  as  affect  the  public 
health,  the  public  morals  and  the  gen- 
eral welfare  of  the  people  of  that 
State.  In  the  exercise  of  the  Police 
power,  State  authorities  are  con- 
stantly obstructing  the  free  flow  of 
interstate  commerce  in  their  zeal  to 
promote  a  purely  local  interest.  They 
are  imposing  onerous  burdens  upon 
it  that  it  should  not  be  compelled  to 
bear.  The  continually  increasing 
conflict  and  turmoil  between  State 
authorities  and  those  engaged  in  in- 
terstate commerce  over  the  police 
power  of  a  State  to  regulate  that  com- 
merce, that  the  Supreme  Court  is 
flooded  with  these  controversies.  At 
the  October  term,  1917,  of  the  Court, 
5 


66 

it  had  to  set  aside  the  statutes  and 
orders  of  six  States  on  account  of  im- 
posing illegal  burdens  on  interstate 
carriers.    At  the  next  term  the  same 
court  decided  five  cases  involving  the 
right  of  the  States  under  the  police 
power  to  control  the  activities  of  in- 
terstate railways  in  the  discharge  of 
their  functions  as  common  carriers. 
As  long  as  the  railway  companies  con- 
tinue to  operate  under  State  charters 
and  are  subject  to  the  police  power  of 
the  State,  there  must  remain  doubts 
and  uncertainties  as  to  the  extent  to 
which  State  jurisdiction  may  be  ex- 
ercised    over     interstate     carriers. 
Under  such  conditions  the  States  will 
continue  to  enact  restrictive  meas- 
ures with  the  knowledge  that  the  Su- 
preme Court  will  set  them  aside  if 
they   are   grossly   oppressive.     But 
this  involves  a  long  and  expensive 
litigation,  and  often  great  losses  to 
the  carriers  pending  the  legal  pro- 
ceedings to  test  the  validity  of  the  act. 
State  Legislatures  will  continue  to 
pass  two-cent-fare  laws  without  any 
investigation  or  knowledge  of  their 


67 

reasonableness,  and  leave  it  to  the 
carrier  to  prove  that  such  statutes 
are  confiscatory. 

It  is  claimed  by  many  that  the  States 
and  not  the  Congress  have  the  exclu- 
sive jurisdiction  over  all  purely  intra 
state  traffic.  This  claim  will  be  con- 
ceded where  the  carrier  does  no  inter- 
state business.  This  situation  can 
exist  only  where  the  carrier  is  purely 
intra  state  and  handles  no  traffic  that 
comes  from  or  goes  to  a  carrier  doing 
an  interstate  business.  The  inter- 
state business  moved  by  an  interstate 
carrier  is  directly  affected  by  all  the 
intra  state  traffic  hauled  over  its 
line.  The  revenues  derived  from 
traffic  moving  from  one  State  to  an- 
ther are  mingled  with  the  receipts 
arising  from  carrying  passengers 
and  freight  between  points  in  the 
same  State.  Out  of  this  fund  the  ex- 
pense of  operation  and  maintenance, 
as  well  as  all  other  expenses,  are 
paid.  The  same  trains  manned  by 
the  same  crews  move  both  State  and 
interstate  traffic  indiscriminately.  It 
is  impossible  to  separate  the  service 


68 

or  allocate  the  cost  of  conducting  it. 
Any  reduction  in  fares  or  rates  on 
traffic  between  points  in  the  same 
State  is  a  direct  and  immediate  bur- 
den upon  the  interstate  passengers 
and  shippers  who  must  make  up  the 
loss  in  order  to  keep  the  carrier  in  a 
condition  of  efficiency.  The  Federal 
regulatory  body  must  have  the  power 
to  adjust  the  charges  on  both  intra 
and  interstate  traffic  that  is  hauled 
by  an  interstate  carrier,  to  the  end 
that  unreasonable  charges  may  not 
be  imposed  upon  either  class  of  busi- 
ness. This  Federal  tribunal  can  be 
depended  upon  to  do  full  justice  to 
the  local  rates  and  fares.  There  is  no 
more  reason  to  expect  that  this  tri- 
bunal will  impose  discriminatory 
burdens  upon  local  traffic  than  there 
is  to  expect  a  Federal  judge  to  be  un- 
just to  the  people  of  the  State  where 
he  lives,  simply  because  he  is  an  offi- 
cial of  the  United  States  Government. 
Only  by  having  both  intra  and  inter- 
state rates  fixed  by  the  same  regu- 
lating commission  or  tribunal  is  it 
possible  to  work  out  any  unified  or 


69 

harmonious    system    of    transporta- 
tion. 

The  State  traffic  is  so  handled  and  min- 
gled with  the  interstate  business  that 
the  two  classes  supplement  each 
other,  and  are  part  and  parcel  of  the 
same  general  movement  over  a  road 
whose  lines  and  equipment  extend 
from  one  State  into  another.  Owing 
to  the  direct  and  immediate  effect 
that  State  traffic  has  on  interstate 
business  and  the  agencies  by  which 
interstate  traffic  is  conducted,  there 
can  be  no  question  as  to  the  power  of 
Congress  to  regulate  it.  The  most 
feasible  method  by  which  this  can  be 
accomplished  is  to  give  State  Com- 
missions authority  to  hear  and  deter- 
mine in  the  first  instance  questions  of 
interstate  transportation  with  the 
right  to  appeal  to  the  Interstate  Com- 
mission and  ultimate  review  by  the 
National  Transportation  Court.  In 
this  way  all  controversies  over  a  con- 
flict of  State  and  Federal  authority 
could  be  determined  in  the  most  ex- 
peditious manner.  If  it  should  be  de- 
cided that  an  order  of  the  State  Com- 


70 

mission  was  one  over  which  the  State 
authorities  had  exclusive  jurisdic- 
tion, the  Federal  regulating  bodies 
would  not  attempt  to  change  or  mod- 
ify it. 

In  any  legislation  which  Congress  may 
enact  respecting  railways,  there 
should  be  a  section  specifically  defin- 
ing and  fixing  the  limits  of  State  ac- 
tion, under  and  by  virtue  of  its  police 
power,  affecting  interstate  transpor- 
tation. 

The  States  are  entitled  to  know  the  ex- 
tent to  which  they  may  go  in  the  law- 
ful exercise  of  their  police  powers  over 
the  instrumentalities  of  interstate 
commerce.  The  possession  of  this 
knowledge  would  put  an  end  to  a  very 
great  deal  of  legislation  that  the  Su- 
preme Court  is  called  on  to  set  aside, 
because  of  its  violation  of  the  Federal 
Constitution.  In  the  act  providing 
for  Federal  incorporation  of  inter- 
state carriers,  the  Congress  could 
place  such  limitation  upon  State  ac- 
tion concerning  these  corporations 
as  it  might  deem  suitable  for  the  pub- 
lic welfare. 


71 

TEKMINALS 

(8)  In  the  immediate  future  railway  man- 
agers must  arrange  for  increasing  on 
a  large  scale  practically  all  railway 
terminals.  This  will  be  one  of  the 
first  necessities  that  will  confront 
them,  no  matter  whether  the  govern- 
ment takes  over  the  railways  under  a 
policy  of  government  ownership,  or 
whether  they  are  to  be  turned  back  to 
the  owners  under  a  policy  of  govern- 
ment regulation.  To  extend  and  re- 
construct the  terminals  so  they  will 
be  adequate  for  the  future  growth  of 
traffic  will  involve  not  only  the  ex- 
penditure of  enormous  sums  of 
money,  but  will  likewise  require  the 
acquisition  of  much  property  both 
public  and  private.  As  terminals  are 
necessarily  located  in  and  near  cities 
and  large  towns,  the  new  tracks  will 
have  to  occupy  the  public  streets, 
parks  and  possibly  other  public  prop- 
erty owned  or  controlled  by  the  mu- 
nicipality. The  difficulties  of  secur- 
ing these  properties  from  the  munic- 
ipal authorities  will  be  many  and 
serious  if  the  carriers  continue  to  op- 


72 

erate  under  State  charters.  The  rail- 
way companies  as  now  organized  can 
secure  the  requisite  land  for  new  ter- 
minals only  (1)  by  agreeing  with  the 
municipal  authorities  on  the  plan  for 
the  terminals,  and  the  compensation 
for  the  right  to  occupy  the  streets  and 
parks,  and  for  taking  the  public  prop- 
erty, or  (2)  by  invoking  the  right  of 
eminent  domain  to  condemn  the 
streets,  parks  and  other  public  prop- 
erty. To  adopt  either  one  of  these 
methods  would  be  well  nigh  a  hope- 
less task. 

If  the  railway  company  should  for  any 
reason  be  compelled  to  condemn  the 
property,  it  would  be  confronted  with 
the  most  serious  legal  difficulties. 
The  proceedings  would  be  under 
State  law  and  controlled  by  State 
statutes.  The  first  question  to  be 
determined  is,  to  what  extent  can 
property  already  devoted  to  a  public 
use  be  condemned  and  appropriated 
to  another  and  different  public  use? 
It  is  by  no  means  clear  that  such  a 
right  can  be  exercised  at  all  over  the 
protest  of  the  municipality  owning 


73 

the  property.  Many  of  the  State  con- 
stitutions make  provision  only  for 
the  taking  of  private  property  for 
public  use.  Nearly  all  the  States  pro- 
vide by  statute  that  railways  cannot 
occupy  the  streets  and  alleys  of  an 
incorporated  town  or  city  without 
permission  of  the  council  or  other 
governing  body.  In  such  States  con- 
demnation proceedings  would  not  lie 
to  acquire  the  right  to  extend  termi- 
nal tracks  across  any  street  or  alley, 
and  in  such  States  the  companies 
would  be  compelled  to  accept  what- 
ever terms  and  conditions  the  coun- 
cils saw  fit  to  impose.  In  many  in- 
stances these  would  be  prohibitive  for 
one  reason  or  another,  and  the  car- 
riers would  be  helpless.  When  such 
insuperable  difficulties  as  these  stand 
in  the  way  of  a  great  public  improve- 
ment, which  is  necessary  for  the  wel- 
fare of  all  the  public,  they  should  be 
removed.  If  the  city  of  Chicago 
should  refuse  to  permit  necessary  ter- 
minal tracks  to  occupy  her  streets, 
except  upon  ruinous  terms,  there 
ought  to  be  some  power  that  could 


74 

give  the  right  of  condemnation,  for 
the  terminal  facilities  will  be  for  the 
use  and  benefit  of  all  the  people  in  all 
the  States.  Only  the  Congress  can 
give  such  a  power  in  the  exercise  of 
its  jurisdiction  over  interstate  com- 
merce. The  Congress  cannot  give  the 
right  of  eminent  domain  to  State  cor- 
porations to  take  property  which  by 
the  laws  of  the  States  that  created 
them  they  are  prohibited  from  acquir- 
ing. The  only  way  in  which  the  nec- 
essary streets  and  alleys  and  parks 
may  be  had  for  the  purpose  of  con- 
structing adequate  terminals,  is  for 
Congress  to  require  Federal  incorpo- 
ration for  all  interstate  railways,  and 
vest  in  these  corporations  the  right 
to  condemn  streets  and  alleys  and 
other  municipal  property  sufficient 
for  the  purpose  of  constructing  an 
adequate  system  of  terminals.  In  the 
exercise  of  such  right  of  condemna- 
tion, the  interest  of  the  city  and  its 
inhabitants  can  be  amply  safe- 
guarded, so  that  they  will  suffer  the 
least  possible  inconvenience. 
In  the  past  the  carriers  have  been  great- 


75 

ly  embarrassed  by  State  action  in 
some  cases,  and  lack  of  it  in  others, 
in  their  efforts  to  secure  necessary 
capital.     Federal  authority  has  no 
control  over  stock  or  bond  issues. 
That  the  States  have  in  various  ways 
placed  burdens   upon   the   carriers, 
and  hindered  them  seriously  in  con- 
ducting their  transportation  does  not 
admit  of  question.    Owing  to  the  fact 
that  the  carriers  will  be  compelled  to 
do  a  tremendous  amount  of  financing, 
as  well  as  increase  their  terminal 
facilities  in  the  immediate  future,  the 
present  lawful  authority  of  the  states 
over   existing  charter  powers,   and 
also  over  the  power  of  condemnation, 
constitutes  the  greatest  barrier  in 
the  way  of  establishing  an  efficient 
transportation  system. 
Transportation   that   will   render   the 
best  public  service  must  have  but  one 
central  power  of  regulation.    If  the 
public  is  to  obtain  the  kind  of  service 
that  will  best  promote  its  welfare,  it 
is  essential  that  the  carriers  be  not 
hampered  in  their  activities  and  de- 
sires to  give  good  service,  but  they 


76 

must  be  given  a  free  hand  for  their  in- 
itiative, and  their  power  to  render  the 
most  efficient  service.  The  national 
authority  only  should  exercise  the 
power  of  regulating  the  carriers  in 
the  public  interest,  in  all  those  things 
materially  affecting  interstate  trans- 
portation. 

TEANSFEEEING  EXISTING  EAILWAYS 
TO  FEDEEAL  COEPOEATIONS 

Assuming  that  Congress  will  provide  for 
Federal  incorporation,  the  question  naturally 
arises  as  to  the  method  whereby  the  Federal 
corporation  will  become  the  owner  and  pos- 
sessor of  the  railways  and  property  now  be- 
longing to  the  existing  railway  companies. 
The  plan  contemplates  that  the  Federal  cor- 
poration will  not  only  take  over  all  the  prop- 
erty of  the  present  companies,  but  will  operate 
them  in  the  future.  In  creating  the  Federal 
corporations  the  Act  of  Congress  will  vest  in 
them  the  power  to  acquire  these  properties, 
and  pay  for  them  by  issuing  its  own  stock  in 
exchange  for  the  outstanding  stock  of  the  pres- 
ent corporations.  It  will  likewise  give  to  such 
corporations  all  the  powers  requisite  to  the 
purpose  of  carrying  on  the  business  of  trans- 


77 

portation,  including  the  power  to  raise  money 
and  condemn  all  the  property  needed  in  their 
enterprise.  At  the  same  time  it  is  presup- 
posed that  the  exercise  of  these  extensive 
powers  will  be  for  the  public  welfare,  and  im- 
poses a  corresponding  duty. 

One  of  the  problems  to  be  solved  is  how  to 
deal  with  the  present  holders  of  railway  stocks 
and  bonds.  Upon  what  basis  will  these  securi- 
ties holders  be  asked  to  surrender  them  and 
accept  in  lieu  thereof  new  securities  or  obli- 
gations of  the  Federal  corporation?  The 
whole  matter  will  be  greatly  simplified  by  the 
Federal  corporation  issuing  but  one  class  of 
securities,  and  that  would  be  common  stock. 
It  would  give  no  mortgage  or  other  liens  upon 
its  property,  nor  issue  any  preferred  stock,  ex- 
cept where  such  securities  become  imperative, 
and  it  would  have  the  right  to  issue  interest- 
bearing  notes  having  the  effect  of  a  lien  upon 
the  company's  property,  for  the  purpose  of  ex- 
tending or  refunding  maturing  bonds.  In  the 
course  of  time  all  senior  securities  would  be 
retired  and  the  whole  capitalization  would  be 
represented  by  one  class  of  stock — the  com- 
mon. 


78 

BONDS  AND  OTHER  OBLIGATIONS 

The  National  Transportation  Court  would 
ascertain  the  actual  value  of  all  bonds  and 
other  evidences  of  debt  calling  for  the  pay- 
ment of  money  at  all  events,  by  the  existing 
corporations.  To  ascertain  such  values  will 
not  be  difficult,  nor  can  they  jeopardize  in  any 
way  the  interest  of  the  holders  of  such  securi- 
ties. Such  valuation  is  for  the  purpose  of 
fixing  a  basis  of  exchanging  them  for  the  stock 
of  the  Federal  Corporation.  In  every  case 
this  stock  will  be  surrendered  in  exchange  for 
bonds  and  other  indebtedness,  at  its  par  value. 
The  holders  of  these  securities  will  have  the 
privilege  of  exchanging  them  for  the  Federal 
Corporation  stock  on  the  values  fixed  by  the 
Transportation  Court,  but  will  not  be  com- 
pelled to  do  so.  Whether  or  not  they  will 
make  the  exchange  will  be  entirely  in  their  dis- 
cretion. To  illustrate : 

In  a  given  case  the  Transportation  Court 
would  fix  the  value  of  a  mortgage  bond  at 
ninety-five  cents  on  the  dollar.  The  holder 
could  surrender  his  $1,000  bond  for  $950  of  the 
stock  of  the  Federal  Corporation.  On  a  min- 
imum five  per  cent,  dividend  on  the  stock,  the 
yield  on  his  security  would  be  $47.50.  If  the 


79 

bond  were  five  per  cent,  interest,  it  would 
yield  him  $50.00.  Which  would  he  prefer  to 
hold?  The  bond  would  be  absolutely  good,  for 
its  interest  would  be  deemed  a  part  of  oper- 
ating expense,  and  the  Federal  Corporation 
has  assumed  its  payment  upon  maturity,  be- 
sides it  is  a  subsisting  lien  on  the  property. 
At  maturity  the  holder  would  receive  its  face 
value.  Both  principal  and  income  are  fixed 
and  cannot  fluctuate.  The  bonds,  however, 
are  subject  to  taxes,  which  would  reduce  the 
income.  On  the  other  hand,  the  income  on  the 
stock  is  not  fixed.  It  may  be  anything  more 
than  five  per  cent,  but  cannot  be  less.  If  the 
company  should  earn  six  per  cent,  the  income 
would  be  $57.00,  or  $7.00  more  than  the  bond 
interest.  The  chance  of  receiving  a  greater 
income,  and  thereby  increasing  the  market 
value  of  the  stock,  would  be  an  inducement  to 
make  the  exchange.  The  stock  would  be  ac- 
cepted in  lieu  of  the  bond  whenever  the  market 
price  of  the  stock  was  above  par.  The  stock 
would  not  be  subject  to  taxes. 

Under  Federal  incorporation  the  position 
of  the  bond  holder  would  be  greatly  strength- 
ened. Every  element  of  risk  would  be  re- 
moved. Loss  could  not  occur.  His  lien  over 
the  property  would  still  be  preserved.  His 


80 

mortgage  contractual  rights  would  remain  un- 
impaired. The  payment  of  the  interest  and 
principal  would  be  certain.  Under  these  con- 
ditions these  railway  bonds  would  be  as  stable 
as  government  bonds,  and  much  more  desir- 
able, where  bearing  a  greater  rate  of  interest, 
as  most  of  them  do,  unless  the  taxes  on  them 
were  excessive.  The  obligation  by  the  Federal 
Corporation  to  pay  these  bonds  and  their  in- 
terest, would  add  much  to  their  security  as  it 
is  now  under  present  conditions. 

The  importance  of  preserving  the  integrity 
and  the  value  of  railway  bonds  cannot  be  over- 
estimated. The  principal  asset  of  the  savings 
banks,  insurance  companies,  trust  companies 
and  bank  collateral  and  trust  estates  is  made 
up  of  railway  bonds,  and  any  material  depre- 
ciation in  their  value,  or  uncertainty  of  inter- 
est payments,  would  precipitate  such  a  panic 
as  would  for  many  years  cripple  our  whole  in- 
dustrial fabric.  Already  the  present  depres- 
sion of  railway  credit  is  being  keenly  felt  by 
those  who  are  seeking  new  capital  for  indus- 
trial enterprises.  On  the  31st  day  of  Decem- 
ber, 1917,  the  Class  1  railways  had  $9,445,- 
295,771  in  bonds  issued  and  outstanding  in  the 
hands  of  their  creditors.  No  other  element  of 
credit  is  comparable  to  this  in  magnitude. 


81 

EXCHANGE  OF  STOCK 
The  Act  of  Congress  creating  the  Federal 
Corporations  will  authorize  them  to  acquire 
existing  railway  properties  and  pay  for  them 
by  issuing  its  own  stock  therefor  in  exchange 
for  the  stock  of  the  carrier  companies  now  out- 
standing. Stock  of  the  Federal  corporations 
will  be  issued  at  par.  An  actual  cash  value 
will  be  fixed  by  the  Transportation  Court  on 
the  present  stock  of  the  carriers  at  which  it 
will  be  surrendered  and  Federal  Corporation 
stock  at  par  will  be  taken  in  lieu  thereof.  The 
present  stockholders  will  be  precisely  the  same 
persons  and  institutions  that  will  hold  all  the 
stock  of  the  Federal  Corporations.  The  only 
difference  being  that  the  par  value  of  the  Fed- 
eral Corporation  stock  which  they  receive  will 
not  be  the  same  in  amount  as  the  par  value  of 
the  stock  now  owned  by  them,  although  the  ac- 
tual value  will  be  the  same.  The  process  will 
be  for  the  stockholder  in  the  present  corpora- 
tions whose  charters  were  all  issued  under 
State  authority  to  exchange  his  stock  for  stock 
in  the  Federal  Corporation.  The  stock  he  re- 
ceives will  have  the  same  intrinsic  value  as 
that  which  he  surrenders  for  it. 

The  present  corporations  will  convey  and 
transfer  by  appropriate  deeds  all  their  prop- 
6 


82 

erty  to  the  Federal  Corporation  which  will 
have  the  same  name.  As  a  consideration  for 
this  property  the  Federal  Corporation  will  as- 
sume the  payment  of  all  the  obligations  of  the 
present  company,  and  agree  to  pay  them  as 
they  mature.  In  addition  to  the  assumption 
of  the  payment  of  all  the  debts,  the  Federal 
Corporation  will  issue  its  stock  at  par  to  the 
stockholders  of  existing  companies  in  ex- 
change for  their  present  holdings,  the  value  of 
which  would  be  determined  by  the  Transporta- 
tion Court.  It  would  so  operate  that  the  same 
stockholders  that  now  own  and  control  exist- 
ing companies  would  own  and  control  the  Fed- 
eral Corporation,  which  would  own  and  oper- 
ate the  same  line  of  railway  that  is  now  owned 
and  operated  by  existing  corporations  created 
under  State  authority.  The  stockholders  of 
the  present  companies  would  exchange  their 
State  charters  with  all  the  handicaps  that 
State  laws  throw  around  them  for  Federal 
charters  freed  from  State  regulation  and  in- 
terference, and  without  any  hindrances  what- 
ever. 

FIXING  STOCK  VALUES 
A  first  impression  may  lead  to  the  conclu- 
sion that  the  effort  to  place  a  real  and  an  ac- 
tual value  upon  the  railway  stocks  now  out- 


83 

standing,  would  encounter  many  difficulties. 
A  consideration  of  the  method  proposed  will 
correct  this  impression. 

In  the  first  instance  the  Transportation 
Court  would  ascertain  the  average  market 
value  of  the  stock  by  using  certain  periods 
(say  June  30th  for  a  number  of  years)  as  a 
test  for  the  average.  The  same  method,  and 
the  same  dates,  June  30, 1914,  can  be  used  that 
was  applied  in  the  Government  Control  Act, 
under  which  the  Director  General  began  the 
operation  of  the  railways,  January  1, 1918.  In 
order  to  illustrate,  we  will  take  the  Southern 
Eailway  as  an  example : 

On  the  31st  of  December,  1917,  the  Southern 
had  outstanding  $185,650,000  of  stock.  As- 
suming that  the  average  value  of  the  stock  as 
shown  by  the  test  periods  would  be  forty-five, 
the  total  value  of  all  the  stock  on  this  basis 
would  be  $83,542,500.  This  amount  would  rep- 
resent the  prima  facie  actual  value  of  the 
stock  as  of  that  date.  The  basis  for  this  value 
of  course  would  be  the  price  for  which  the 
stock  was  bought  on  the  stock  exchange.  As 
soon  as  this  sum  ($83,542.500)  was  ascer- 
tained by  the  Transportation  Court  the  Fed- 
eral Corporation  would  issue  to  the  Southern 
stockholders  its  own  stock  at  par  to  the  same 


84 

amount,  viz :  $83,542,500,  and  the  stock  of  the 
existing  Southern  Railway  Company  would 
be  exchanged  and  retired. 

In  most  instances  it  is  claimed  by  stock- 
holders in  railway  corporations  that  the  stock 
exchange  price  is  lower  than  the  true  and  ac- 
tual value  of  the  stock.  As  a  consequence 
these  shareholders  would  naturally  demand 
from  the  Federal  Corporation  more  shares 
than  the  test  average  would  give  them.  This 
claim  would  be  fully  met  by  the  Federal  Cor- 
poration giving  to  the  stockholder  a  receipt 
showing  the  number  of  shares  he  had  turned 
in  and  the  number  he  had  received  in  exchange 
therefor,  and  which  would  provide  that  if  it 
should  be  found  after  a  full  valuation  of  the 
company's  property  thereafter  to  be  made  by 
the  Transportation  Court  that  the  stock  was 
worth  more  than  the  average  price  for  which 
issues  had  been  made,  that  new  stock  would 
be  issued  to  the  holder  of  the  receipt  to  cover 
the  increased  value  so  found. 

As  to  all  the  elements  that  should  properly 
go  into  the  sum  that  will  represent  the  true 
value  of  railway  property,  no  two  well  in- 
formed experts  or  economists  have  quite 
agreed.  Some  claim  that  the  present  value 
should  be  limited  to  original  cost  without  in- 


85 

terest.  Others  say  it  should  be  the  cost  of  re- 
production, while  still  others  claim  that  rail- 
way property  should  have  the  same  corre- 
sponding increase  in  value  due  to  the  growth 
and  development  of  the  country  as  other  real 
property,  in  addition  to  the  money  investment. 
That  the  same  increment  that  enhances  real 
estate  values  on  account  of  increased  popula- 
tion, both  farms  and  city  property,  should  be 
applied  to  railways.  Value  depends  on  earn- 
ings, and  earnings  on  rates  and  rates  upon 
public  commissions.  So  complex  is  this  whole 
subject  of  ascertaining  the  real  value  of  rail- 
way property  that  the  Interstate  Commerce 
Commission  has  had  the  matter  under  consid- 
eration for  the  last  four  years  and  have 
reached  no  conclusion  as  to  all  the  elements 
that  should  enter  into  it.  This  whole  question 
of  fixing  the  actual  value  of  railway  properties 
must  finally  be  determined  by  the  Supreme 
Court,  when  it  specifies  the  elements  of  value 
that  should  be  taken  into  consideration  in 
reaching  a  just  conclusion  as  to  value,  the 
problem  will  be  solved,  and  then  it  becomes  a 
matter  of  detail  to  work  out.  The  Congress 
cannot  lay  down  rules  whereby  railway  values 
can  be  fixed,  for  this  is  not  a  legislative  ques- 
tion but  it  belongs  exclusively  to  the  judiciary. 


86 

KEOKOANIZATION  OF  CAPITALIZA- 
TION 

When  we  consider  that  the  stock  today  (May 
1, 1919)  of  all  the  railways  belonging  to  Class 
1,  with  the  exception  of  only  eight,  is  selling 
on  the  market  at  prices  less  than  par,  it  be- 
comes apparent  that  a  readjustment  of  the 
stock  issues  is  imperative.  The  values  which 
the  investing  public  places  upon  eighty-five 
per  cent,  of  the  stock  of  these  companies 
ranges  all  the  way  from  ninety-eight  to  ten 
cents  on  the  dollar.  The  face  value  of  this 
stock  is  in  round  numbers  $7,300,000,000, 
while  the  present  market  value  will  not  exceed 
$4,500,000,000.  Of  course  the  present  market 
value  of  the  stock  is  lower  than  its  true  value. 
An  average  value  determined  as  heretofore  in- 
dicated would,  it  is  estimated,  increase  this 
present  value  to  $5,000,000,000.  If  to  this  there 
be  added  the  sum  of  $300,000,000,  to  represent 
the  difference  between  the  market  price  and 
the  true  and  actual  value,  it  would  leave  out- 
standing stock  issues  having  a  par  or  face 
value  over  the  true  value  of  $2,000,000,000.  In 
other  words,  if  the  stock  of  the  railway  com- 
panies should  be  so  adjusted  that  the  actual 
value  was  represented  by  the  par  value,  there 
would  be  $2,000,000,000  of  this  stock  that 


87 

would  be  cancelled  or  written  off  as  having  no 
present  actual  value.  However,  the  holder  of 
this  excess  stock  has  an  expectancy — in  many 
cases  a  mere  hope — that  in  course  of  time  the 
growth  of  business  resulting  in  increased 
earnings  will  give  to  this  excess  stock  some 
value.  It  should  be  remembered  that  such  in- 
creased earnings  will  be  reflected  in  larger 
dividends  on  the  lesser  amount  of  new  stock 
that  will  represent  actual  value  in  the  first 
instance,  and  consequently  would  send  the 
market  value  of  this  stock  above  par.  It  fol- 
lows necessarily  that  with  such  a  grade  and 
character  of  stock  the  company  can  provide 
additional  capital,  on  at  least  a  par  basis  if 
not  at  a  premium,  as  every  dollar  of  stock  is- 
sued would  represent  a  dollar  in  cash  that  had 
actually  gone  into  the  improvement  of  the 
road  and  its  facilities. 

This  plan  contemplates  a  reorganization  of 
the  railways  so  far  as  their  capitalization  is 
represented  by  stock  issues.  It  means  that  all 
existing  stock  will  be  replaced  by  new  stock 
to  be  issued  by  the  Federal  Corporation, 
wherein  the  actual  value  will  be  equal  in  the 
first  instance  to  the  face  value  of  the  stock, 
and  which  in  the  near  future  will  be  selling  on 
the  market  at  a  price  above  par.  Most  of  the 


88 

railways  have  in  the  past  gone  through  bank- 
ruptcy and  receiverships,  necessitating  a  com- 
plete readjustment  of  their  capitalization. 
These  reorganizations  have  operated  to  scale 
down  bond  issues  even,  so  as  to  reduce  interest 
or  fixed  charges,  resulting  in  new  mortgages, 
and  a  cancellation  of  outstanding  bond  and 
stock  issues. 

The  following  report  illustrates  the  princi- 
ples of  reorganization  as  applied  to  the  Boston 
and  Maine  Railroad.  It  will  be  a  long  while 
before  the  $49,000,000  of  common  stock  can 
have  any  actual  value  for  dividend  purposes. 

"B.  &  M.  PLAN  IS  SUBMITTED 

"CONSOLIDATION  SCHEME  Is  WORKED  OUT 
BY  EAILROAD^S  OFFICIALS 

"Boston,  Feb.  25. — Hearings  before  the 
Public  Service  Commission  on  the  peti- 
tion for  perfection  of  the  plans  for  reor- 
ganization of  the  Boston  and  Maine  Rail- 
road in  this  State  began  to-day.  Counsel 
representing  the  Boston  and  Maine  Mi- 
nority Stockholders  Association  said  a 
long  legal  battle  over  the  proposed  con- 
solidation of  the  leased  lines  might  be  ex- 
pected. He  requested  that  the  hearings 
be  postponed  for  two  weeks,  as  he  said  the 


89 

railroad  was  'in  comfort  under  receiver- 
ship/ The  commission  refused  the  re- 
quest and  counsel  for  the  road  began  the 
introduction  of  evidence  in  support  of  the 
reorganization  plan. 

"Counsel  for  the  Boston  and  Maine 
presented  a  plan  for  consolidation  which 
he  said  had  been  worked  out  by  officials 
of  the  road.  Stockholders  of  the  leased 
lines  surrendering  their  holdings  would 
get  preferred  shares  in  the  Boston  and 
Maine,  with  the  stipulation  that  the  inter- 
est rate  should  be  the  same  in  both  cases. 
The  unfunded  debt  of  $18,000,000  would 
be  cared  for  by  an  issue  of  bonds  to  be 
taken  up  by  the  Government  through  a 
mortgage  proceeding. 

"Operation  of  the  lines  under  Federal 
control  would  be  upon  the  standard  rates 
of  the  last  three  years.  For  a  period  of 
five  years  preferred  stockholders  would 
get  eighty  per  cent,  of  their  dividends  and 
holders  of  the  common  stock  would  receive 
nothing.  The  net  income  above  the  pre- 
ferred dividends  would  create  a  trust  fund 
through  which  the  bonded  debt  would  be 
cancelled.  The  commission  took  the  prop- 
osition under  advisement." 


90 

In  reorganization  plans  the  bankers  have 
taken  heavy  discounts  and  commissions  from 
the  bonds,  while  receiving  large  blocks  of 
bonus  stock.  The  bankers,  however,  are  not 
to  be  condemned  for  these  profits  for  it  was 
the  only  possible  way  at  that  time  whereby  the 
conflicting  interests  of  senior  and  junior  lien 
holders  and  stockholders  could  be  harmonized, 
and  the  company  rehabilitated  with  new  credit 
and  given  the  status  of  a  going  concern.  One 
of  the  advantages  that  the  proposed  plan  will 
have  over  the  old  method  of  reorganization 
will  be  the  strengthening  of  all  bond  issues 
without  in  any  way  impairing  their  value  or 
integrity,  and  giving  to  the  stockholder  a  new 
stock  possessing  equal  value  with  that  which 
he  now  holds,  upon  which  a  minimum  dividend 
of  five  per  cent,  is  made  sure  and  certain. 

With  the  purpose  of  establishing  a  better 
transportation  system  for  the  whole  country 
than  the  one  we  now  have,  the  Congress  with 
its  committees  on  interstate  commerce  have 
been  making  investigations  into  every  phase 
of  the  subject.  A  great  many  witnesses  and 
experts  have  appeared  before  the  committee 
and  given  their  testimony  and  suggestions. 
The  railways,  the  investors,  the  shippers,  the 
employees,  the  State  Commissioners,  the  In- 


91 

terstate  Commerce  Commission,  and  commer- 
cial and  industrial  associations  and  econo- 
mists have  sent  their  ablest  representatives  to 
offer  plans  and  advise  with  the  Congressional 
committees  who  are  making  this  investiga- 
tion. These  witnesses  have  been  gentlemen 
of  long  experience  and  conspicuous  ability. 
In  every  instance  the  wisdom  of  the  scheme 
or  plan  offered  has  been  tested  and  analyzed 
by  a  thorough  and  searching  cross  examina- 
tion, conducted  by  each  member  of  the  inves- 
tigating committee  of  Senators  and  Eepresen- 
tatives  of  the  House.  From  the  course  this  in- 
quiry has  taken  it  is  evident  that  the  commit- 
tee has  in  mind  certain  fundamental  and  pri- 
mary interests  which  must  be  safeguarded  in 
any  concrete  plan  they  may  adopt.  This  I 
think  fully  appears  in  the  published  reports 
of  the  hearings.  These  interests  are : 

(1)  The  public  welfare. 

(2)  Interest  of  the  employees. 

(3)  The  investor. 

(4)  The  corporation  itself. 

(5)  Existing  stockholders. 

(1)   THE  PUBLIC  WELFAKE 

Consideration  for  the  general  public  inter- 
est must  be  the  guiding  principle  upon  which  a 


92 

permanent  and  an  efficient  transportation  sys- 
tem can  only  be  established.  This  purpose 
will  be  paramount  to  everything  else.  If  sec- 
tional bias  or  local  self  interest  shall  be  per- 
mitted to  color  the  deliberations  of  Congress 
into  adopting  a  scheme  for  the  readjustment 
of  the  railways,  to  the  detriment  of  the  public, 
viewed  as  a  whole,  it  will  fail  almost  as  soon 
as  it  is  put  into  operation.  The  public  must  be 
satisfied  that  the  carriers  under  the  reorgan- 
ized system  will  perform  the  services  required 
of  them  in  the  most  efficient  and  expeditious 
way,  and  that  the  manner  of  doing  these  serv- 
ices will  not  result  in  excessive  charges  nor 
discriminatory  practices.  The  public  must  be 
made  to  believe  that  the  personal  interest  of 
employees,  investors,  corporations,  and  exist- 
ing stockholders  shall  be  subordinated  to  the 
public  welfare  whenever  there  is  a  conflict. 
The  reason  for  this  is  apparent,  in  view  of  the 
fact  that  in  the  last  analysis  the  public  will 
pay  all  dividends,  all  wages  and  all  expenses 
of  operation.  All  these  items,  including 
profits,  will  be  a  tax  upon  the  people,  which 
they  will  have  to  pay.  The  public  has  been 
under  the  impression  for  many  years  that  it 
is  paying  dividends  on  watered  stock  that  orig- 
inally represented  no  actual  money  invested 


93 

in  the  property,  and  they  feel  that  this  is  an 
injustice.    How  much  foundation  there  is  for 
this  belief,  it  is  not  necessary  here  to  deter- 
mine.   The  public  does  know,  however,  that 
Class  1  roads  have  outstanding  approximately 
$2,000,000,000  of  stock  in  excess  of  actual  pres- 
ent value.    This  very  fact  creates  in  the  mind 
of  the  average  man  the  conclusion  that  there 
is  something  radically  wrong  in  railway  cap- 
italization.     Whether    this    notion    is    well 
founded  or  not,  this  frame  of  mind  is  a  source 
of  suspicion  which  must  be  removed  before  the 
public  will  feel  that  it  is  receiving  a  fair  show. 
The  public  must  have  an  abiding  confidence  in 
the  plan  that  Congress  shall  finally  adopt,  and 
as  a  prerequisite  to  such  confidence  there  must 
be  proof  that  all  "watered"  stock  has  been 
eliminated.    This  can  only  be  done  by  calling 
in  outstanding  stock  and  issuing  in  exchange 
therefor  new  shares  based  upon  actual  value, 
under  the  supervision  of  a  Federal  tribunal 
charged  with  this  duty.    The  public  want  to 
know  that  they  are  paying  dividends  upon 
sums  that  represent  the  true  worth  of  the 
property,  and  in  such  event  there  will  be  no 
effort  to  reduce  rate  schedules  while  dividends 
are  under  ten  or  twelve  per  cent.    The  public 
are  much  more  interested  in  an  adequate  serv- 


94 

ice  than  in  small  dividends.  In  any  and  all 
events,  the  public  must  be  satisfied  with  the 
plan,  and  made  to  believe  that  they  can  de- 
pend upon  being  served  whenever  service  is  re- 
quired continuously  and  without  interruption. 
The  public  demands  of  Congress  the  estab- 
lishment of  a  system  of  transportation  that 
will  be  permanent,  efficient  and  dependable. 
They  realize  that  it  must  be  so  arranged  that 
the  carriers  can  earn  enough  money  not  only 
to  keep  out  of  bankruptcy,  but  to  require  an 
ample  reward  to  investors  and  employees,  as 
well  as  to  provide  all  the  requisite  facilities. 
The  public  no  longer  entertains  sentiments  of 
malice  toward  the  carriers,  but  on  the  con- 
trary they  demand  the  removal  of  every  ob- 
struction and  unnecessary  burden  that  has 
been  placed  upon  them  by  State  and  Federal 
legislation.  The  public  has  committed  itself 
to  no  plan  or  program  of  reorganization  to 
submit  to  Congress.  In  view  of  the  fact  that 
there  has  been  such  a  diversity  of  opinion 
among  the  experts  who  have  appeared  before 
the  Commerce  Committee,  the  public  cannot 
be  expected  to  develop  a  scheme  of  its  own, 
but  it  must  depend  on  the  Congress  to  exercise 
its  own  judgment  as  to  the  plan  that  will  best 
meet  the  public  requirements. 


THE  INVESTOR  IN  RAILWAY 
SECURITIES 

Those  who  buy  railway  stocks  and  bonds 
are  controlled  by  human  impulses.  Senti- 
ments of  philanthropy  and  benevolence  find  a 
very  small  place  in  their  calculations.  The 
law  cannot  compel  any  one  to  purchase  these 
securities.  Every  purchaser  must  be  per- 
suaded that  it  is  to  his  pecuniary  interest  to 
exchange  his  money  for  them.  There  must  be 
an  inducement  offered  to  him,  in  the  way  of  an 
assurance  that  his  investment  will  yield  on  the 
whole  better  returns  than  others  that  are  open 
to  him.  Every  one  takes  under  consideration 
three  factors  in  determining  the  course  of  his 
investments,  viz :  safety,  certainty  of  interest 
returns,  and  prospective  profits. 

When  the  principal  is  represented  by  a  stock 
or  bond  that  cannot  fall  in  value  except  in 
time  of  great  national  calamities,  it  would  be 
deemed  a  very  safe  investment,  and  the  in- 
vestor would  not  apprehend  any  loss  of  prin- 
cipal. A  stock  that  would  have  back  of  it  the 
moral  pledge  of  the  nation,  the  sworn  duty  of 
Federal  Tribunals  vested  with  full  authority, 
and  the  legal  obligation  of  a  railway,  that  the 

95 


96 

stock  of  that  carrier  should  be  made  to  yield 
a  minimum  dividend  of  five  per  cent,  per 
annum,  would  be  accepted  by  the  most  cautious 
and  critical  as  a  certainty  of  paying  at  the 
very  least  a  return  of  five  per  cent,  per  annum 
on  the  investment.  In  addition  to  the  induce- 
ment of  safety  of  principal  and  certainty  of 
dividend  there  is  presented  the  reasonable  ex- 
pectation of  profit.  The  gambling  instinct  is 
inherent  in  most  men,  and  they  will  risk  more 
when  there  is  a  good  prospect  of  receiving  a 
profit  over  and  above  the  ordinary  interest  re- 
turns. Before  the  investor  can  be  tempted 
to  purchase  railway  stocks  at  par  it  is 
necessary  to  inspire  him  with  confidence 
in  their  permanent  stability  of  value.  He 
must  believe  that  the  annual  income  will  be 
certain,  and  a  profit  is  reasonably  sure.  As 
the  investor  will  have  to  put  up  enormous 
sums  of  money  in  the  next  ten  years  in  order 
that  the  carriers  may  properly  equip  them- 
selves to  handle  the  public's  business,  it  is  es- 
sential that  the  railways  be  placed  in  a  posi- 
tion where  they  can  offer  him  a  security  that 
will  meet  his  approval.  He  must  be  satisfied 
that  his  investment  is  surrounded  by  every 
safeguard  of  protection.  To  secure  from  the 
investor  vast  sums  of  money  in  the  immediate 


97 

future  is  a  condition  precedent  to  any  reorgan- 
ization of  the  railways  that  will  enable  them 
to  render  proper  service.  To  provide  the  nec- 
essary capital  is  the  first  step  to  be  taken,  and 
the  first  question  to  be  answered  is  what  kind 
of  security  will  be  most  tempting  to  the  in- 
vestor? 

The  stock  will  represent  a  real  and  actual 
value,  it  will  pay  a  minimum  dividend  of  five 
per  cent,  on  that  value,  and  will  carry  with  it 
a  probability  of  a  good  profit.  These  peculiar 
features  will  meet  every  possible  requirement 
of  the  most  conservative  investor. 

The  stock  should  be  made  still  more  attrac- 
tive by  exempting  it  from  all  taxation.  Banks 
should  be  authorized  to  make  loans  on  the 
stock  as  collateral  amounting  to  ninety-five 
per  cent,  of  its  par  value.  All  those  who  are 
required  to  execute  bonds  to  the  United  States 
should  be  permitted  to  use  the  stock  as  secur- 
ity for  the  performance  of  the  bond.  So  far 
as  Congress  has  the  power  it  should  make  the 
stock  a  proper  investment  for  savings  banks, 
trust  companies  and  insurance  companies.  In 
addition  to  the  inherent  value  of  the  stock, 
legislation  can  add  much  to  its  desirability. 

In  order  that  the  stock  may  be  free  from 
all  doubts  and  complications  that  could  cast 
7 


98 

suspicion  upon  its  value,  its  issues,  in  every  in- 
stance, would  be  approved  by  the  Transporta- 
tion Court,  which  would  be  a  guaranty  to  the 
investor  and  the  public  that  the  face  value  of 
the  stock  had  gone  into  the  improvement  of 
the  property.  The  most  prudent  purchaser 
would  not  be  called  upon  to  find  out  how  many 
bonds  were  outstanding,  the  size  of  the  earn- 
ings on  the  probability  of  not  paying  divi- 
dends. The  law  would  take  care  of  all  these 
inquiries,  and  there  would  never  be  a  railway 
stock  traded  in  on  the  stock  exchanges  for  less 
than  par.  As  it  is  now,  with  eight  or  nine  ex- 
ceptions, all  the  railway  stocks  are  bought  and 
sold  at  a  price  much  below  par.  Under  the 
present  regime  a  purchaser  of  stock  takes  a 
serious  risk  of  a  fall  in  price  attended  by  con- 
sequent loss.  It  is  this  element  of  risk,  which 
is  very  real, — that  has  driven  the  price  of 
stocks  down  to  their  present  low  levels.  The 
more  power  exercised  over  the  carriers  by 
State  authority,  together  with  the  hampering 
legislation  of  Congress,  the  greater  will  be  the 
risk,  and  consequently  the  difficulties  of  sell 
ing  new  stock  at  a  fair  price  will  continue  to 
increase. 

The  present  statutes,  both  State  and  Nation, 
give  the  investor  neither  protection  nor  en- 


99 

couragement.  They  look  upon  him  as  a  legiti- 
mate object  of  prey,  and  they  have  proceeded 
to  prey  upon  him.  Not  in  a  decade  has  there 
been  any  statute  passed  that  did  not  increase 
the  carriers  troubles  and  add  new  charges  to 
the  cost  of  operation.  Every  act  has  been 
punitive  in  its  purpose  and  effect,  and  has 
tended  to  decrease  the  power  of  the  company 
to  earn  dividends  for  its  stockholders.  To 
this  cause  more  than  to  all  others  combined 
may  be  attributed  the  present  condition  of  our- 
railways.  By  virtue  of  the  power  of  regula- 
tion exercised  by  both  State  and  Federal  Gov- 
ernments the  railway  shareholder  has  seen  the 
value  of  his  stock  shrink  from  day  to  day, 
until  in  most  instances  he  could  not  now  sell  it 
for  more  than  fifty  per  cent,  of  what  he  paid 
for  it.  During  this  decade  we  have  had  a  gen- 
eral prosperity  much  above  normal  (with  the 
exception  of  1915)  — in  which  every  one  shared, 
except  the  investor  in  railway  stocks.  He 
knows  what  adverse  legislation  has  cost  him. 
He  is  aware  of  what  it  can  do.  by  what  it  has 
done.  He  is  not  buying  railway  stocks  now 
save  at  ruinous  prices  to  the  seller.  He  will 
not  purchase  again  under  existing  laws.  Yet 
the  railways  are  compelled  to  get  from  him  in 
the  immediate  future  billions  of  dollars  of 


100 

new  money.  There'  can  be  no  progress  made 
toward  establishing  an  efficient  transporta- 
tion system  until  State  laws  of  regulation  are 
superseded,  and  the  restrictive  legislation  of 
Congress  is  repealed.  With  his  past  and  pres- 
ent experience  he  will  not  invest  in  railways 
until  he  is  assured  that  the  investment  is  safe, 
the  income  certain,  and  a  profit  reasonably 
sure.  This  is  not  an  unreasonable  position  be- 
cause it  is  one  that  he  is  justly  entitled  to  take. 

XTHE  PRESENT  STOCKHOLDER 

Any  investment  that  results  in  shrinkage  of 
value  and  consequent  loss  is  unfortunate.  The 
investment  itself  may  have  been  induced  by 
excess  optimism,  lack  of  knowledge  of  true 
values,  or  poor  judgment.  And  in  many  in- 
stances purchases  have  been  made  as  a  specu- 
lation pure  and  simple.  Whatever  happened 
to  be  the  inducement  for  the  venture  the  pres- 
ent holder  of  railway  shares  finds  that  the  ac- 
tual value  of  the  shares  is  probably  sixty  per 
cent,  of  their  face  value,  and  much  less  than 
what  he  paid  for  them.  Among  the  leading 
railways  there  is  now  a  wide  margin  between 
face  value  and  market  value  of  their  stocks,  as 
shown  by  the  quotations  from  the  stock  ex- 
changes. In  Class  1  roads  the  par  value  of  the 


101 

stock  is  about  $2,600,000,000  more  than  the 
present  market  value.  This  difference  must 
be  adjusted  so  that  the  par  value  will  not  be 
greater  than  the  actual  value.  This  readjust- 
ment cannot  be  made  without  the  present 
shareholders  suffering  what  may  appear  to  be 
losses.  There  can  be  n'o  loss  in  the  readjust- 
ment as  the  loss  has  already  been  incurred. 
The  purchaser  who  paid  seventy  for  his  stock 
a  few  years  ago  could  not  sell  it  now  for  more 
than  fifty  or  fifty-five.  And  unless  there  is  an 
equitable  reorganization  and  the  carriers  put 
upon  a  sound  financial  basis,  bankruptcies  are 
sure  to  follow,  and  his  stock  will  continue  to 
decline  and  its  value  may  be  practically  ex- 
tinguished through  receiverships  and  reorgan- 
ization. 

The  responsibility  for  this  vanishing  stock 
value  is  due  primarily  to  a  faulty  system  of 
railway  financing  and  capitalization.  But  it 
must  be  remembered  that  it  was  the  only 
method  by  which  capital  could  be  secured,  at 
the  time,  with  which  to  construct  new  lines 
and  extensions.  By  an  equally  faulty  system 
of  governmental  regulation,  both  State  and 
National,  the  railways  have  not  been  permit- 
ted to  increase  their  earnings  to  the  point  that 
would  strengthen  their  credit,  and  thus  have 


102 

the  ability  to  obtain  new  money  and  thereby 
maintain  the  value  of  their  stocks.  The  condi- 
tion that  confronts  the  present  stockholder  is 
a  serious  one  indeed.  He  realizes  that  if  the 
railways  are  to  continue  to  operate  under 
State  charters  in  the  future,  they  can  only  se- 
cure new  money  by  selling  bonds  or  some  other 
form  of  security  that  will  be  superior  to  his 
stock.  He  knows  that  vast  sums  of  new  money 
must  be  provided  at  once  in  order  that  the 
railways  may  discharge  their  functions  as 
common  carriers,  which  will  necessarily  oper- 
ate to  further  depress  the  value  of  his  hold- 
ings. The  question  for  him  to  consider  is  how 
can  he  save  something  and  be  protected  from 
the  impending  wreck?  To  this  question  there 
can  be  but  one  answer ;  and  that  is,  scale  down 
the  par  value  of  his  stock  until  it  will  repre- 
sent the  actual  value  of  the  property  owned  by 
the  carrier,  so  that  his  future  holding  will  be 
a  dividend  paying  stock  at  all  events,  with  a 
reasonable  expectation  of  some  profit.  He 
cannot  complain  of  this  adjustment  for  it  will 
not  only  stop  future  losses,  but  will  give  him  a 
reasonable  return  upon  the  value  of  the  prop- 
erty used  in  conducting  transportation,  and 
by  implication  he  is  not  entitled  to  more.  The 
public  cannot  be  heard  to  complain  of  this  ar- 


103 

rangement  for  the  court  has  said  that  justly 
they  should  pay  such  reasonable  return. 

It  may  be  thought  by  some  that  it  is  particu- 
larly unfortunate  that  existing  stockholders 
should  suffer  losses.  Quite  true,  but  the  pub- 
lic should  not  guarantee  the  purchaser  of  stock 
against  loss,  and  if  he  is  the  victim  of  the  pres- 
ent situation  it  cannot  be  helped ;  but  the  sug- 
gestion, made  by  this  plan  is  that  he  will  not 
continue  to  be  oppressed,  and  will  be  saved 
from  further  loss. 

The  effect  that  this  adjustment  will  have  on 
rates  for  the  future  cannot  be  determined  with 
much  certainty  owing  to  the  increased  expense 
of  operation  and  maintenance.  But  the  prac- 
tical workings  of  the  plan  can  be  illustrated 
by  applying  it  to  Class  1  roads  for  the  year 
1917.  In  round  numbers — which  I  will  use — 
the  aggregate  outstanding  stock  of  these  rail- 
ways on  December  31, 1917,  was  $7,352,000,000. 
Their  net  income  was  $589,044,000,  or  eight 
per  cent,  on  the  capital  stock.  The  dividends 
amounted  to  $221,482,000,  being  three  per  cent, 
on  the  stock.  After  making  $70,000,000  of  spe- 
cial appropriations  there  was  a  surplus  of 
$295,286,000  transferred  to  profit  and  loss. 
The  proposed  plan  would  give  to  the  stock  a 
value  of  seventy,  which  is  liberal,  and  would 


104 

make  outstanding  stock  amount  to  $5,146,400,- 
000.  The  earnings  of  the  companies  on  this 
stock  would  be  $589,044,000,  or  eleven  and 
four-tenths  per  cent.  The  dividend  on  this 
stock  at  five  per  cent,  would  amount  to  $257,- 
320,000,  which  when  paid,  would  leave  a 
surplus  of  $331,680,000  for  special  appropria- 
tions and  profit  and  loss  of  six  and  four -tenths 
per  cent.  This  illustration  takes  no  account 
of  the  great  savings  that  would  be  made  in  the 
way  of  taxes,  license  fees,  cost  and  expense 
that  are  now  imposed  by  State  authority.  All 
such  savings  would  go  to  swell  dividends  and 
increase  surplus  earnings  without  increasing 
rates. 

The  ultimate  eft'ect  of  this  plan  of  recapital- 
ization will  be  to  reduce  rates  and  keep  them 
steady  at  a  generally  lower  level,  and  at  the 
same  time  place  the  investors  security  upon  a 
safe  basis  where  the  fluctuations  in  value  will 
be  reduced  to  the  lowest  possible  minimum. 
The  tendency  will  be  toward  increasing  values 
of  the  stock,  and  a  consequent  movement  to- 
ward lower  rate  levels. 

It  is  impracticable  for  the  carriers  to  do 
any  new  financing  by  selling  stock  when  the 
outstanding  issues  are  selling  in  the  market 
at  a  price  far  below  par.  If  it  could  be  sold  at 


105 

all, — and  in  most  cases  it  could  not, — it  would 
have  to  be  placed  at  such  a  discount  that  it 
would  greatly  increase  the  par  value  over  the 
actual  value  and  add  to  the  burden  which  the 
public  would  be  expected  to  bear  in  the  course 
of  time.  One  of  the  Senators  of  the  Interstate 
Commerce  Committee  apropos  of  this  question 
said :  "We  ought  to  relieve  the  people  of  the 
country  of  the  excess  capital  charge,  if  we  can 
do  it  in  fairness  to  capital,  and  at  the  same 
time  preserve  efficiency  and  economy  in  oper- 
ation." This  expresses,  not  only  the  sentiment 
of  members  of  Congress,  but  the  universal  feel- 
ing of  the  public. 

Excessive  capitalization  will  always  exer- 
cise an  evil  influence  in  any  system  of  trans- 
portation that  may  be  adopted. 


ANALYSIS  OF  THE  SECURITIES 
HOLDERS'  PLAN 

On  the  31st  day  of  January.  1919,  the  Na- 
tional Association  of  Owners  of  Eailroad  Se- 
curities, speaking  through  their  President.  Mr. 
S.  Davies  Warfield,  filed  with  the  Senate  In- 
terstate Commerce  Committee  a  carefully  pre- 
pared plan  for  the  financial  reorganization  of 
the  railways.  It  would  probably  be  a  little 
more  accurate  to  say,  a  plan  for  future  railway 
financing.  Any  suggestion  coming  from  so  re- 
spectable a  source  as  this  is  entitled  to  receive 
serious  and  earnest  consideration.  It  may  be 
taken  for  granted  that  while  these  gentlemen 
represent  primarily  the  interest  of  investors 
in  railway  securities,  they  have  likewise  kept 
in  mind  the  public  welfare  in  the  plan  which 
they  present.  It  is  with  this  feeling  that  they 
will  welcome  any  suggestion  from  the  stand- 
point of  the  shipper,  that  may  tend  to  strength- 
en the  securities  which  they  now  own,  or  which 
they  may  purchase  of  new  issues,  that  I  ven- 
ture to  make  an  analysis  in  the  way  of  recom- 
mendations concerning  some  of  the  matters 
which  they  urge. 

106 


107 

The  first  of  the  "Fundamentals"  of  the  plan 
submitted  is : 

( 1 )  "A  minimum  rate  of  return  on  the  prop- 
erty investment  in  the  railroads,  fixed  by  Act 
of  Congress,  through  rates  adjusted  as  occa- 
sion may  demand,  in  order  that  the  securities 
of  the  railroads  may  be  stabilized  and  their 
credit  established  on  a  basis  necessary  to  se- 
cure the  money  to  provide  the  shippers  and 
traveling  public  adequate  facilities  and  serv- 
ice/' 

This  is  a  very  clear  statement  of  a  general 
principle  which,  if  incorporated  into  the  plan 
that  Congress  will  adopt,  will  practically  solve 
the  problem  of  a  proper  reorganization  of  rail- 
way finances.  But  before  it  can  be  accepted  as 
a  whole  the  dominant  assumption  needs  inter- 
pretation. It  provides  for  "a  minimum  rate 
of  return  on  the  property  investment."  In- 
stead of  requiring  a  return  on  "property  in- 
vestment" the  requirement  should  be  a  mini- 
mum return  on  the  value  of  the  property  used 
in  conducting  the  transportation.  The  differ- 
ence between  "property  investment"  and  ac- 
tual value  of  property  used  is  very  great.  This 
can  be  best  illustrated  by  a  concrete  example. 

At  the  end  of  the  year  191 7  the  Seaboard  Air 
Line  reports  to  the  Interstate  Commerce  Com- 


108 

mission  showed  that  the  company  had  a  prop- 
erty investment  of  $192,423,000,  Also  that 
this  company  had  outstanding  $131,483.000  in 
bonds  and  long  term  debt  and  $60,950,000  in 
stock,  making  its  capitalization  $192,433,000. 
Property  investment  includes  all  stock  and 
bonds  at  their  face  value,  or  par.  A  minimum 
rate  of  five  per  cent,  on  property  investment 
would  not  be  too  much,  and  therefore  the  min- 
imum return  to  the  security  holders  of  the  Sea- 
board Air  Line  would  be  five  per  cent,  on  $192,- 
544,000 — the  property  investment,  which  is 
$9,627,200.  If  we  look  to  the  actual  value  of 
the  property  as  a  basis  for  dividends,  and  fix 
that  value  at  the  face  value  of  the  bonds,  plus 
the  market  value  of  the  stock  we  will  have 
$131,483,000  of  bonds,  and  the  market  price  of 
the  stock  which  is  eight,  giving  a  stock  value 
of  $4,807,600,  which  gives  a  total  value  of  the 
property  at  $136,290,600,  that  would  yield  a 
minimum  of  five  per  cent.,  or  $6,814,530.  The 
difference  between  what  the  public  would  be 
required  to  pay  on  "property  investment"  and 
actual  value  of  the  property  is  $2,712,770.  On 
this  same  basis  of  calculation,  the  public  for 
1917  would  have  paid  $130,000,000  minimum 
dividends  upon  stock  in  Class  1  roads  that  had 
no  actual  or  market  value  whatever. 


109 

In  view  of  the  results  that  would  follow  a 
requirement  of  a  minimum  dividend  on  "prop- 
erty investment"  instead  of  actual  value,  I 
would  respectfully  suggest  that  the  first  fun- 
damental of  the  plan  be  amended  by  striking 
out  "property  investment"  and  inserting 
"value  of  property  used  in  conducting  the 
transportation."  If  the  words  "property  in- 
vestment'' are  to  be  retained  the  proposition 
will  become  so  palpably  unjust  and  burden- 
some that  I  believe  the  Congress  would  never 
enact  it  into  law. 

The  time  has  come  when  the  railways  should 
be  capitalized  on  a  basis  of  actual  values,  if 
their  credit  is  to  be  established  and  main- 
tained. If  the  public  could  speak  it  would  cer- 
tainly demand  that  it  be  saved  from  paying  in- 
comes on  excess  values,  and  after  all  the  pub- 
lic must  believe  that  it  is  receiving  a  fair  meas- 
ure of  justice  as  a  condition  precedent  to  the 
success  of  any  plan  that  may  be  evolved. 

The  only  feasible  method  of  reorganizing 
railway  capitalization  whereby  excessive 
stock  issues  may  be  superseded  by  stock  that 
has  an  actual  par  value  is  by  Federal  incorpo- 
ration. 

But  the  plan  proposed  by  the  National  Se- 
curities Holders  Association  opposes  Federal 


110 

incorporation  and  gives  the  reasons  in  sup- 
port of  its  opposition,  as  follows : 

(1)  "The  principal  purpose  thereof  (Fed- 
eral incorporation)  seems  to  be  the  oblitera- 
tion of  State  Commissions." 

This  statement  does  not  give  the  full  pur- 
pose of  Federal  incorporation,  nor  is  it  accu- 
rate when  it  assumes  that  "the  purpose  is  to 
obliterate  State  Commissions."  The  neces- 
sity for  Federal  incorporation  is  to  remove 
from  the  States  the  power  to  hamper  and  place 
undue  burdens  upon  Interstate  Commerce. 
This  inhibition  would  apply  to  all  State  tri- 
bunals, including  legislatures  commissions, 
taxing  boards,  and  all  other  State  authorities 
vested  with  power  to  restrict  or  interfere  with 
the  easy,  natural  movement  of  commerce  be- 
tween the  States.  This  commerce  should  be 
freed  from  every  hindrance,  not  necessary  for 
the  general  public  welfare.  No  State  should 
be  permitted  to  use  its  power  to  work  discrim- 
inations in  favor  of  its  own  citizens,  and 
against  the  general  public.  This  authority  of 
the  States  over  their  own  railway  charters — 
to  change,  amend  and  revoke — gives  them  the 
undisputed  right  to  regulate  and  control  the 
issuance  and  sale  of  securities  by  the  rail- 
ways, and  consequently  all  railway  financing 


Ill 

is  dependent  upon  and  subject  to  the  will,  the 
whim  or  caprice  of  State  tribunals.  Every 
rate  or  charge  prescribed  by  State  authority 
directly  and  immediately  affects  all  the  rev- 
enues of  interstate  carriers,  and  the  regula- 
tion of  the  operation  of  trains  adds  to  the  ex- 
pense, and  is  a  drain  upon  the  sum  of  its  earn- 
ings. Every  reduction  of  rates  on  shipments 
between  points  in  the  same  State,  together 
with  increased  expenses  imposed  by  State  au- 
thority lessens  the  value  of  the  stocks  and 
bonds  of  the  railway,  and  makes  these  secur- 
ities less  stable  and  less  trustworthy. 

The  Obliteration  of  State  Commissions 

It  is  not  apparent  that  the  advocates  of  Fed- 
eral incorporation  expect  that  State  commis- 
sions will  be  discontinued.  There  is  no  reason 
why  they  should  be  done  away  with  under  Fed- 
eral incorporation.  On  the  contrary  the  State 
Commissions  should  form  a  part  of  the  Fed- 
eral scheme  of  regulation.  They  will  co-oper- 
ate with  the  Interstate  Commerce  Commis- 
sion. They  will  in  the  first  instance  hear  and 
determine  most  of  the  controversies  between 
the  carriers  and  shippers  arising  within  their 
respective  States.  This  jurisdiction  will  ex- 
tend to  both  interstate  and  intrastate  traffic, 


112 

subject  to  review  by  the  Interstate  Commis- 
sion. All  their  judgments  and  orders  con- 
cerning purely  intrastate  matters  that  do  not 
affect  interstate  business  will,  of  course,  be 
final,  while  their  orders  involving  interstate 
business  may  be  corrected  by  the  Interstate 
Commission.  On  the  record  made  by  the  State 
Commission — The  Interstate  Commission  will 
act  as  an  appellate  tribunal,  and  will  deter- 
mine its  own  appellate  jurisdiction  depending 
on  whether  the  order  appealed  from  affects  in- 
terstate commerce,  or  is  purely  intrastate  in 
its  operation,  in  which  latter  event  the  order 
of  the  State  Commission  would  become  final. 
This  method  of  procedure  will  insure  a  well 
defined  system  of  transportation  upon  which 
both  the  carriers  and  the  public  may  rely.  By 
this  method  of  co-operation  between  the  State 
and  Interstate  Commissions  many  advantages 
will  be  obtained,  such  as — 

(a)  Eliminating  most  of  the  examiners  for 

the  Interstate  Commission. 

(b)  A  speedy  hearing  before  a  local  tri- 

bunal, possessing  an  intimate  knowl- 
edge of  local  conditions  and  having  a 
wide  experience  and  extensive  expert 
knowledge  of  transportation  prob- 
lems. 


113 

(c)  The  remedy  for  errors  and  mistakes  is 

through,  appellate  process  to  the  In- 
terstate Commission,  thereby  reliev- 
ing the  parties  from  a  long  and  ex- 
pensive litigation  in  the  courts,  on  a 
new  record  and  original  testimony. 

(d)  It  will  preserve  the  harmony  of  a  gen- 

eral  transportation   system,   by   re- 
moving the  conflicts  that  arise  be- 
tween the  exercise  of  State  police 
power,  and  the  power  of  Congress 
over  interstate  commerce. 
(2)  Another  objection  to  Federal  incorpo- 
ration is :    "It  means  turning  over  the  prop- 
erties to  the  Government  under  an  Act  of  Con- 
gress that,  to  obtain  the  object  sought  by  those 
advocating    it,    shall    completely    surrender 
rights  now  possessed  by  their  owners,  the  re- 
lease of  which  might  eventually  prove  suicidal 
to  them." 

There  are  so  many  vital  things  assumed  in 
this  statement  that  they  must  be  examined 
separately  in  order  to  appreciate  their  full 
significance. 

(a)   Federal   incorporation — "means   turn- 
ing over  the  properties  to  the  Government 
under  an  Act  of  Congress."    This  statement 
shows  a  misconception  of  the  whole  scope  of 
8 


114 

Federal  incorporation.  The  carriers  are  now 
operating  under  charters  granted  by  State  au- 
thority. Federal  incorporation  means  that 
they  would  operate  under  charters  granted  by 
Federal  authority.  The  corporate  powers  of 
the  companies  would  be  practically  the  same. 
The  company  would  be  owned  and  controlled 
by  identically  the  same  stockholders.  The 
property  would  be  the  same,  and  the  manage- 
ment would  be  the  same.  So  far  as  the  prop- 
erty of  the  company  is  concerned  the  Govern- 
ment would  have  no  more  control  over  or  in- 
terest in  it  than  the  States  do  now.  The  Fed- 
eral regulating  body  would  have,  however,  the 
right  to  require  a  board  of  directors  to  remove 
an  executive  officer  on  the  ground  of  ineffi- 
ciency but  for  no  other  cause.  A  moment's  re- 
flection makes  it  apparent  that  there  would 
be  no  turning  over  to  the  Government  the  pres- 
ent property  of  the  railways.  But  the  prop- 
erty would  be  turned  over  by  one  corporation 
to  another  having  the  same  stockholders  with 
the  same  control  and  management.  The  stock- 
holders would  be  turning  their  own  property 
over  to  themselves,  freed  from  the  incubus  of 
hostile  State  action,  which  has  and  would  con- 
tinue to  decrease  the  value  of  their  securities. 


115 

(b)  That  "to  obtain  the  object  sought  by 
those  advocating  it"  (Federal  incorporation). 

If  those  who  advocate  Federal  incorpora- 
tion have  any  other  object  than  to  place  the 
railways  upon  a  safe  and  sane  foundation,  it 
has  not  been  disclosed  by  the  hearings  held  by 
the  Senate  Interstate  Commerce  Committee, 
nor  is  it  to  be  found  in  the  plan  submitted  by 
the  Securities'  Holders  Association.  It  may 
be  assumed  that  the  proponents  of  Federal  in- 
corporation believe  that  it  is  the  only  method 
by  which  excess  capitalization  can  be  reduced 
to  the  point  where  the  capitalization  will  fairly 
represent  the  true  and  actual  value  of  all  the 
property  used  in  conducting  transportation. 
They  also  believe  that  this  is  the  only  course 
to  pursue  that  will  enable  the  carriers  to  es- 
tablish and  maintain  the  credit  necessary  to 
supply  themselves  with  needed  capital.  They 
do  know  that  the  adoption  of  this  policy  will 
be  eminently  just  to  the  public,  and  will  insure 
to  the  investor — both  present  and  future — an 
adequate  return  upon  all  the  values  he  may 
have  put  into  the  property.  It  will  likewise 
give  assurance  to  the  public  that  they  will  not 
be  called  on  to  pay  dividends  on  stock  that  rep- 
resents no  real  value  whatever. 


116 

(c )  -'Shall  completely  surrender  rights  now 
possessed  by  the  owners,  the  release  of  which 
might  eventually  prove  suicidal  to  them.'' 

It  will  be  presumed  that  the  author  of  this 
paragraph  had  in  mind  the  rights  of  securities 
holders  when  he  speaks  of  the  rights  of  the 
"owners,"  as  the  securities  holders  are  con- 
sidered to  be  the  owners  of  railways,  although 
technically  this  is  not  strictly  accurate,  yet  it 
is  true  in  substance. 

What  are  the  rights  "now  possessed  by  the 
owners"  that  they  will  have  to  completely  sur- 
render? There  can  be  but  one  right  which 
they  will  be  called  upon  to  surrender,  and  that 
is  the  right  to  operate  their  railways  under  a 
charter  issued  by  the  State  instead  of  one 
granted  by  Federal  authority.  Eights  incor- 
porated in  State  charters  can  be  no  more  fav- 
orable to  the  securities  holders  than  kindred 
rights  contained  in  Federal  charters.  The 
Congress  can  authorize  a  Federal  charter  that 
will  be  infinitely  more  attractive  and  valuable 
to  the  stockholder  than  the  States  can  possibly 
do,  without  changing  their  constitutions.  As 
an  example :  The  States,  generally  speaking, 
prohibit  railways  from  appropriating  public 
property,  streets  and  alleys,  without  the  con- 
sent of  the  municipality  wherein  they  are  lo- 


117 

cated.  The  Congress  can  give  its  corporation 
the  right  to  condemn  and  occupy  streets  and 
alleys,  without  the  consent  of  any  State  au- 
thority, municipal  or  legislative.  In  view  of 
the  necessity  of  building  new  and  extensive 
terminals  in  practically  all  the  cities  and  large 
towns,  the  right  of  the  railways  to  secure  the 
requisite  ground  for  this  purpose,  becomes  at 
once  of  the  most  vital  concern,  not  alone  to  the 
stockholders  but  to  the  general  public  as  well. 
The  possession  of  the  right  to  condemn  and  oc- 
cupy streets  and  alleys  with  terminal  tracks, 
by  the  carriers  will  save  to  them  and  their  se- 
curities holders  hundreds  of  millions  of  dol- 
lars in  the  next  few  years. 

It  must  be  presumed  that  Federal  incorpo- 
ration means  that  these  corporations  will  be 
granted  every  power  necessary  or  expedient 
lo  better  enable  them  to  give  the  public  an  ef- 
ficient service. 

Whatever  surrender  of  property  rights 
"now  possessed  by  the  owners"  which  they 
will  be  required  to  make,  they  will  be  simply 
surrendering  these  rights  to  themselves. 
There  will  be  no  right  lost  in  the  process  of 
surrender,  but  additional  rights  and  powers 
of  tremendous  importance  and  value  will  be 
obtained. 


118 

If  this  paragraph  means  that  the  rights 
"now  possessed  by  the  owners"  are  the  rights 
that  pertain  to  securities  holders  as  such,  and 
not  the  rights  belonging  to  the  property  owned 
by  the  corporation,  it  will  be  necessary  to  con- 
sider such  rights  as  arise  out  of  the  contrac- 
tual obligations  of  the  corporation,  and  also 
the  right  of  the  stockholder,  for  they  divide 
themselves  into  two  separate  and  distinct 
classes. 

Contractual  obligations  are  the  evidences  of 
debts  owed  by  the  corporation,  which  it  has 
given  its  written  promise  to  pay.  These  are 
bonds  secured  by  mortgage  over  the  property 
or  its  income,  and  notes  usually  secured  by 
collateral.  The  holders  of  these  securities  are 
creditors  of  the  company,  and  as  a  class  have 
no  interest  in  the  future  earnings,  except  as 
they  tend  to  strengthen  or  lessen  the  security 
of  their  holdings.  All  the  right  possessed  by 
this  class  of  owners  is  the  right  to  have  their 
debts  paid,  as  they  mature.  But  Federal  in- 
corporation can  in  no  wise  lessen  or  impair 
this  right.  The  lien  over  the  property  to  se- 
cure their  payment  will  not  be  disturbed.  All 
their  mortgage  rights  will  be  preserved.  The 
Federal  corporation  will  assume  the  payment 
of  all  these  obligations  when  it  takes  over  the 


119 

railway.  This  class  of  securities  will  not  be 
surrendered  or  parted  with  by  their  holders. 
They  will  be  greatly  strengthened  as  the  earn- 
ing of  a  five  per  cent,  dividend  on  the  stock 
presupposes  that  the  earnings  will  be  suffi- 
cient to  provide  interest  payments  and  take 
care  of  the  contractual  obligations  as  they  ma- 
ture. It  follows  that  the  requirement  of  a  sur- 
render of  rights  contained  in  the  statement 
can  only  refer  to  the  rights  of  existing  stock- 
holders. 

The  stockholders  possess  the  right  to  man- 
age and  control  the  business  and  affairs  of  the 
company  through  a  board  of  directors  which 
they  select  from  among  their  own  number. 
They  also  have  a  right  to  the  profits  which  the 
company  earns  after  the  payment  of  fixed 
charges  and  the  expense  of  operation.  Under 
Federal  incorporation  the  same  stockholders 
would,  in  precisely  the  same  way,  manage  and 
control  the  affairs  and  business  of  the  com- 
pany, as  they  exercised  under  State  charters, 
and  this  right  would  in  no  sense  be  impaired 
or  restricted,  or  surrendered.  The  same  is 
equally  true  of  their  rights  to  all  the  profits 
earned  by  the  company  after  paying  expenses 
and  fixed  charges.  The  wealth  and  income  of 
the  stockholder  is  enhanced  by  increased  net 


120 

earnings.  Net  earnings  will  be  increased  in 
proportion  to  the  saving  in  the  items  of  ex- 
pense. The  maintenance  of  corporate  organ- 
ization under  a  State  charter  is  very  expen- 
sive, while  there  would  be  no  expense  attached 
to  corporate  organization  under  Federal  law. 
State  action  also  decreases  gross  income,  and 
adds  to  the  expense  account.  The  manage- 
ment of  the  railway  would  be  the  same  whether 
operated  under  State  or  Federal  charter,  and 
the  profits  or  net  earnings  arising  under  Fed- 
eral incorporation  would  be  much  more  than 
if  operated  under  a  State  charter.  The  quan- 
tity of  outstanding  stock  cannot  affect  net 
earnings  unless  there  is  so  much  excess  capi- 
talization as  to  impair  the  credit  of  the  com- 
pany, in  which  event  it  would  have  a  depress- 
ing effect  on  profits.  Under  Federal  incorpo- 
ration the  stockholders  would  receive  more 
profits  than  under  State  charters.  There  is  a 
contingency,  however,  which  could  arise 
whereby  the  present  stockholder  would  re- 
ceive more  profits  than  he  would  realize  by 
surrendering  his  present  holdings  in  exchange 
for  the  stock  of  a  Federal  corporation.  That 
contingency  could  arise  in  those  cases  where 
the  present  market  price  of  the  stock  would 
range  from  eight  to  thirty  cents  on  the  dollar 


121 

of  the  par  value.  Such  carriers  now  have  an 
excess  capitalization  of  fifty  to  sixty  per  cent, 
as  represented  by  their  outstanding  stock.  If 
some  device  can  be  contrived  that  will  give  a 
value  to  this  excess  stock, — which  now  has 
none — it  will  enure  of  course  to  the  benefit  of 
those  who  own  it.  This  can  only  be  done  by 
collecting  enough  revenue  from  the  public  to 
give  it  a  value  that  would  make  it  marketable. 
What  right,  either  legal  or  moral,  has  the 
holder  of  such  stock  to  have  the  public  taxed 
for  his  enrichment?  He  cannot  claim  that  he 
has  any  legal  right  to  impose  this  burden,  for 
the  courts  have  time  and  again  ruled  that  his 
legal  right  is  limited  to  a  reasonable  return 
on  the  value  of  the  property  used  in  conducting 
the  transportation.  This  excess  capitalization 
represents  no  property  values  whatever,  and 
therefore  he  can  have  no  legal  right  to  a  return 
or  income  on  a  stock  having  no  value.  The 
courts  have  intimated  without  so  holding  that 
six  per  cent,  is  a  reasonable  income  or  return 
to  the  investor  on  the  value  of  all  the  property 
used  by  the  carrier  in  conducting  its  transpor- 
tation. As  a  consequence  the  only  right  which 
might  be  invaded  by  a  surrender  of  this  value- 
less excess  stock  is  one  based  upon  purely 
moral  considerations.  The  argument  might 


122 

be  made  by  the  holder  of  this  stock  that  he 
bought  it  at  a  time  when  prudent  men  believed 
that  it  was  well  worth  the  price  paid  for  it, 
and  constituted  an  attractive  investment.  But 
by  an  unwise  exercise  of  the  power  of  regula- 
tion, both  State  and  National,  the  value  of  the 
stock  has  been  reduced,  entailing  consequent 
losses.  And,  as  the  representatives  of  the  pub- 
lic are  primarily  responsible  for  his  loss  that 
there  is  a  moral  obligation  upon  the  part  of 
the  public  to  make  him  whole.  That  through 
no  fault  of  his  he  now  finds  himself  between 
the  upper  and  the  nether  millstones.  It  may 
be  urged  in  answer  to  this  argument,  that  he 
purchased  the  stock  with  his  eyes  open — he 
had  full  knowledge  of  the  power  of  State  and 
Nation  to  so  regulate  the  railway  as  to  impair 
its  ability  to  earn  dividends  on  its  stock — he 
trusted  to  the  wisdom  of  his  co-stockholders  to 
so  manage  the  company's  affairs  as  to  protect 
his  purchase — he  knew  that  in  every  invest- 
ment there  is  a  large  element  of  risk — the  risk 
he  took  must  be  increased  or  diminished  by  an 
infinite  variety  of  unforeseen  circumstances 
—he  was  cognizant  of  the  fact  that  Govern- 
ment has  exhibited  no  ability  to  manage  or 
regulate  industrial  enterprises  with  economy 
and  efficiency — that  wherever  Government  has 


123 

laid  its  hands  upon  the  railways  the  result 
has  been  increased  expense  and  lower  net  in- 
come. The  fault  does  not  all  lie  with  govern- 
mental interference,  however.  The  custom  of 
issuing  excess  stock  in  the  policy  that  has  here- 
tofore characterized  railway  financing  was 
sufficiently  well  known  to  put  him  upon  his 
guard.  He  should  have  seen  that  the  tendency 
of  railways  generally  was  toward  more  dras- 
tic regulation,  lower  net  earnings  and  a  de- 
cided impairment  of  railway  credit,  all  of 
which  were  contributing  to  lessen  the  value  of 
outstanding  stock.  In  view  of  these  well- 
known  conditions  how  can  it  be  contended  that 
there  is  a  moral  obligation  upon  the  part  of 
the  public  to  guarantee  the  stock  purchaser 
against  loss  in  making  an  imprudent  bargain? 

The  inevitable  conclusion  is  that  the  rights, 
both  legal  and  moral,  now  possessed  by  the 
owners  of  this  stock  when  surrendered  to  a 
Federal  corporation,  can  in  no  wise  affect  them 
prejudicially,  nor  can  such  a  turning  over 
"eventually  prove  suicidal  to  them." 

Another  objection  to  Federal  incorporation 
presented  by  the  security  holders  is : 

"Endless  litigation  would  ensue,  in  which 
the  States  would  participate,  to  contest  the 
abrogation  of  tlieir  right  to  exact  the  perform- 


124 

ance  on  the  part  of  railroads  of  certain  obliga- 
tions assumed  by  them  as  conditions  imposed 
in  return  for  franchise  rights  that  had  been 
granted  to  them  by  the  States." 

This  argument  presents  the  question  as  to 
the  policy  of  having  Interstate  Commerce  reg- 
ulated by  Federal  authority  alone  or  shall  the 
States  have  an  independent  concurrent  juris- 
diction over  interstate  transportation  along 
with  the  Federal  power?  The  argument  goes 
much  further  and  assumes  that  the  States 
should  have  and  exercise  exclusive  jurisdic- 
tion over  all  railway  financing;  that  it  would 
be  the  sole  function  of  the  States  to  control, 
prohibit  or  allow  all  stock  and  bond  issues  and 
prescribe  the  terms  upon  which  these  issues 
may  be  sold,  and  naming  the  purposes  for 
which  the  proceeds  may  be  used.  It  requires 
no  argument  to  prove  that  this  exclusive 
power  over  railway  financing  which  the  States 
now  possess,  has  done  more  to  destroy  railway 
credit,  and  embarrass  railway  operation,  than 
all  other  causes  combined.  To  show  what  an 
evil  this  is  it  is  only  necessary  to  refer  to  the 
experience  of  every  railway  that  has  had  occa- 
sion to  do  any  considerable  financing  in  the 
last  fifteen  years.  The  New  York,  New  Haven 
and  Hartford  is  a  conspicuous  example.  To 


125 

remove  from  the  carriers  this  great  menace 
of  State  regulation  of  their  financial  opera- 
tions is  one  of  the  principal  reasons  that  make 
Federal  incorporation  a  necessity.  Every  ob- 
stacle that  stands  in  the  way  of  establishing 
and  maintaining  a  high  degree  of  railway 
credit  must  be  removed  before  it  is  possible  to 
provide  an  adequate  transportation  system. 
To  ask  that  the  present  power  of  the  States 
over  railway  financing  be  preserved  is  to  ask 
that  all  the  evils  growing  out  of  it  be  not  only 
continued  but  greatly  augmented  in  the  fu- 
ture. Kailway  operation  in  the  past  decade 
has  demonstrated  and  brought  to  the  fore  evils 
and  mistakes  from  which  all  transportation 
has  been  greatly  hampered,  and  the  public  wel- 
fare has  suffered.  It  is  the  duty  of  Congress 
to  enact  such  legislation  as  will  relieve  the 
public  from  these  burdens,  by  placing  our 
transportation  upon  a  safe  and  sane  basis. 
This  can  only  be  done  by  centralizing  all  reg- 
ulatory authority  in  one  Federal  scheme  with 
one  Federal  tribunal  over  all  subordinate 
boards  or  commissions.  The  plan  suggested 
herein  contemplates  the  co-operation  of  all  the 
State  Commissions  as  part  of  the  Federal  or- 
ganization. The  jurisdiction  of  the  State 
Commissions  over  purely  intrastate  rates  and 


12G 

practices,  where  they  do  not  affect  interstate 
traffic,  will  in  no  sense  be  impaired.  At  the 
same  time  they  will  render  great  aid  to  the 
Interstate  Commerce  Commission  on  practi- 
cally all  questions  of  interstate  commerce. 

To  the  claim  that  endless  litigation  would 
grow  out  of  a  policy  of  Federal  incorporation 
an  answer  can  be  made.  The  statement  itself 
can  only  be  predicated  upon  conjecture.  While 
litigation  is  always  a  possibility,  as  there  is 
no  power  to  prevent  any  one  from  instituting 
a  suit,  yet  what  are  the  probabilities  that  such 
litigation  would  ensue?  Who  would  bring 
such  a  suit,  a  stockholder  or  the  State?  We 
have  already  seen  that  the  stockholder  would 
have  no  legal  right  that  would  be  impaired  or 
threatened  by  exchanging  his  stock  in  a  State 
corporation  for  stock  of  equal  or  greater  value 
in  a  Federal  corporation  owning  and  operating 
the  same  property.  Therefore  he  could  not 
maintain  a  suit  as  he  could  show  no  loss  of  a 
property  right.  Of  course  he  would  not  bring 
a  suit  to  maintain  a  moral  right  even  if  such 
a  right  existed.  The  State  as  a  stockholder 
would  have  the  same  status  as  an  individual 
stockholder  and  could  not  succeed  in  a  court. 
If  a  State  should  bring  a  proceeding  to  com- 
pel the  corporation  which  it  has  chartered  to 


127 

perform  the  conditions  of  the  charter  the  an- 
swer to  the  suit  would  be  that  the  corporation's 
business  was  an  interstate  carrier  over  which 
the  Congress  had  exclusive  jurisdiction  and 
regulatory  power.  That  the  Congress,  by  ap- 
propriate act,  had  required  it  to  cease  doing 
an  interstate  business,  or  anything  affecting 
interstate  commerce,  and  to  turn  over  to  the 
Federal  corporation  all  its  property  and  in- 
strumentalities used  in  connection  with  con- 
ducting interstate  transportation.  That  under 
the  Federal  Constitution  such  Act  of  Congress 
would  be  the  supreme  law  of  the  land  and 
must  be  obeyed  regardless  of  State  laws  to  the 
contrary.  This  answer  would  be  complete  and 
the  suit  would  be  dismissed.  Another  reason 
why  the  States  would  not  go  into  litigation 
would  arise  from  the  fact  that  Federal  incor- 
poration would  give  the  citizens  of  each  State 
a  much  better  transportation  system  than  it 
would  be  possible  for  the  States  to  provide. 
The  general  welfare  of  the  people  of  each  State 
would  be  greatly  promoted  by  Federal  incor- 
poration, and  no  State  would  be  tempted  to 
take  a  step  in  opposition  to  the  best  interest 
of  the  people  of  that  State.  In  view  of  the 
reasonable  certainty  of  the  failure  of  any  liti- 
gation undertaken  to  resist  the  carrying  out 


128 

the  policy  of  Federal  incorporation,  it  is  in- 
conceivable that  any  State  or  stockholder 
would  embark  in  such  an  enterprise. 

Existing  State  Authority  Over  Interstate 
Railways  Condemned  by  the  Su- 
preme Court 

"The  interblending  of  operations  in  the 
conduct  of  interstate  and  local  business 
by  interstate  carriers  is  strongly  pressed 
upon  our  attention.  It  is  urged  that  the 
same  right  of  way,  terminals,  rails, 
bridges,  and  stations  are  provided  for 
both  classes  of  traffic ;  that  the  proportion 
of  each  sort  of  business  varies  from  year 
to  year,  and,  indeed,  from  day  to  day; 
that  no  division  of  the  plant,  no  appor- 
tionment of  it  between  interstate  and 
local  traffic,  can  be  made  today,  which  will 
hold  tomorrow ;  that  terminals,  facilities, 
and  connections  in  one  state  aid  the  car- 
rier's entire  business,  and  are  an  element 
of  value  with  respect  to  the  whole  prop- 
erty and  the  business  in  other  states ;  that 
securities  are  issued  against  the  entire 
line  of  the  carrier  and  cannot  be  divided 
by  states;  that  tariffs  should  be  made 
with  a  view  to  all  the  traffic  of  the  road, 


129 

and  should  be  fair  as  between  through 
and  short-haul  business;  and  that,  in 
substance,  no  regulation  of  rates  can  be 
just  which  does  not  take  into  considera- 
tion the  whole  field  of  the  carrier's  opera- 
tions, irrespective  of  state  lines.  The 
force  of  these  contentions  is  emphasized 
in  these  cases,  and  in  others  of  like  na- 
ture, by  the  extreme  difficulty  and  intri- 
cacy of  the  calculations  which  must  be 
made  in  the  effort  to  establish  a  segrega- 
tion of  intrastate  business  for  the  purpose 
of  determining  the  return  to  which  the 
carrier  is  properly  entitled  therefrom. 

"But  these  considerations  are  for  the 
practical  judgment  of  Congress  in  deter- 
mining the  extent  of  the  regulation  neces- 
sary under  existing  conditions  of  trans- 
portation to  conserve  and  promote  the  in- 
terests of  interstate  commerce.  If  the  sit- 
uation has  become  such  by  reason  of  the 
interblending  of  the  interstate  and  intra- 
state operations  of  interstate  carriers, 
that  adequate  regulation  of  their  inter- 
state rates  cannot  be  maintained  without 
imposing  requirements  with  respect  to 
their  intrastate  rates  which  substantially 
affect  the  former,  it  is  for  Congress  to  de- 
9 


130 

termine,  within  the  limits  of  its  constitu- 
tional authority  over  interstate  commerce 
and  its  instruments  the  measure  of  the 
regulation  it  should  supply.  It  is  the 
function  of  this  court  to  interpret  and 
apply  the  law  already  enacted,  but  not, 
under  the  guise  of  construction,  to  pro- 
vide a  more  comprehensive  scheme  of  reg- 
ulation than  Congress  has  decided  upon. 
Nor,  in  the  absence  of  Federal  action,  may 
we  deny  effect  to  the  laws  of  the  state  en- 
acted within  the  field  which  it  is  entitled 
to  occupy  until  its  authority  is  limited 
through  the  exertion  of  Congress  of  its 
paramount  constitutional  power." 

Geo.  T.  Simpson  vs.  David  Shepard,  33 

Supreme  Court  Kep.  729. 
In  the  foregoing  Minnesota  rate  case  the 
Supreme  Court  has  pointed  out  the  serious  dif- 
ficulties that  hinder  the  railways  in  dealing 
with  State  authority  over  interstate  carriers. 
The  court  has  said  as  plainly  as  it  is  permitted 
to  say,  that  these  complications  must  continue 
until  Congress  takes  from  the  States  the 
power  they  now  possess  over  interstate  com- 
merce which  can  be  exercised  indirectly.  This 
statement  of  the  Supreme  Court  is  the  strong- 
est possible  argument  against  leaving  the  car- 


131 

riers  subject  to  state  control;  and  is  therefore 
a  complete  answer  to  the  position  taken  on 
this  proposition  by  the  National  Association 
of  Securities  Holders. 

KEGIONAL  DISTKICTS 

The  plan  of  the  securities  holders  contem- 
plates dividing  up  the  whole  country  into  six 
Kegional  Districts,  which  would  include  a 
railway  mileage  ranging  from  34,000  to  50,000 
miles  in  each  district.  The  object  of  this  dis- 
tricting is  to  provide  aids  and  helps  to  the 
Interstate  Commerce  Commission  in  its  duties 
of  regulation.  New  commerce  commissions  of 
three  members  would  be  appointed  by  the 
President  for  each  of  these  districts,  and  the 
appointees  would  be  recommended  by  the  two 
political  parties.  As  an  aid  to  the  Eegional 
Commissions  rate  committees  shall  be  ap- 
pointed upon  which  the  railways  and  the  ship- 
pers shall  be  represented. 

It  will  be  seen  that  the  creation  of  six  new 
commerce  commissions,  supported  or  opposed 
as  the  case  may  be  by  six  rate  committees 
which  are  separate  and  distinct  tribunals,  will 
add  very  greatly  to  the  machinery  for  regu- 
lating interstate  commerce. 


132 

The  objection  to  this  regional  plan  is  (1) 
That  the  new  Commerce  Commissioners  will 
be  selected  by  the  Executive  Committees  of 
the  political  parties.  These  selections  will  be 
made — judging  the  future  by  the  past — upon 
purely  political  considerations,  without  refer- 
ence to  fitness  or  qualification  for  the  particu- 
lar duties  to  be  performed;  (2)  It  would  in- 
troduce so  many  complications  and  untried  ex- 
periments in  the  regulatory  scheme  that  it 
would  take  many  years,  (a)  to  train  the  new 
commissioners  and  (b)  determine  their  proper 
functions  and  provinces;  (3)  By  the  process 
of  appeal  it  would  add  to  the  overburdened 
Interstate  Commission  rather  than  relieve  it 
of  some  of  its  duties;  (4)  The  machinery  of 
it  would  be  complex  and  cumbersome;  (5) 
The  State  Commissions  are,  generally  speak- 
ing, trained  experts  in  transportation  mat- 
ters, having  had  wide  experience  in  dealing 
with  all  these  problems.  These  commissions 
already  organized  and  fully  equipped  with  ex- 
pert knowledge,  and  familiarity  with  local 
conditions,  can  do  everything  that  is  possible 
for  the  Eegional  Commissions  to  do  in  much 
shorter  time  and  giving  the  work  a  vastly  su- 
perior ability.  They  can  also  pass  upon  and 
determine  purely  intrastate  matters,  some- 


133 

thing  which  the  regional  commissions  cannot 
do.  The  State  Commissions  can  and  should 
be  representatives  of  both  State  and  National 
laws  in  regulating  commerce.  With  the  proc- 
ess of  appeal  to  the  Interstate  Commission 
there  would  be  no  conflict  between  State  and 
Federal  jurisdiction,  and  a  system  of  trans- 
portation unified  and  harmonious  would  nec- 
essarily result. 

As  between  the  proposition  to  create  reg- 
ional districts  and  supply  them  with  a  lot  of 
new  and  untried  machinery  as  necessary  helps 
to  the  Interstate  Commission,  and  the  plan  to 
secure  the  co-operation  of  the  State  commis- 
sions as  part  of  Federal  regulation  machinery 
there  can  be  no  question  as  to  which  would 
yield  the  best  results. 

The  Securities  Holders  plan  further  pro- 
vides : 

"That  no  railroad  shall  build  new  mileage 
unless  it  shall  show  the  necessity  for  it  *  *  *  * 
and  shall  receive  the  sanction  of  the  State 
commissions  of  the  respective  States  having 
jurisdiction." 

The  unfortunate  experience  that  the  rail- 
ways have  had  in  this  respect  with  the  Texas 
and  other  State  commissions,  affords  a  com- 
plete answer  to  this  proposal.  If  the  Chesa- 


134 

peake  &  Ohio  Hallway  Company  should  desire 
to  build  new  mileage  in  Illinois  to  provide  for 
the  traffic  offered  to  it  in  that  and  other  States, 
it  would  be  compelled  to  obtain  the  sanction 
of  the  Commissions  for  Virginia,  West  Vir- 
ginia, Kentucky,  Ohio,  and  Indiana,  as  well  as 
Illinois.  Each  one  of  these  Commissions 
would  look  at  the  proposition  from  a  different 
angle,  and  from  their  own  local  point  of  view. 
It  must  be  remembered  that  the  people  of 
every  other  State  in  the  Union  whose  goods 
would  be  handled  over  C.  &  O.  tracks  are  as 
much  interested  in  the  facilities  for  the  trans- 
port of  their  commodities  by  this  railway  as 
are  the  people  who  live  in  the  States  where 
these  facilities  are  located.  This  becomes  a 
national  question  exclusively,  as  all  the  peo- 
ple are  directly  interested.  It  follows  that 
this  predominant  national  interest  should  not 
be  controlled  by  State  action,  but  should  be 
under  the  sole  jurisdiction  and  regulation  of 
Federal  authority. 

There  is  no  real  reason  why  the  States 
should  control  extensions,  construction  of  new 
mileage  or  the  acquisition  of  greater  facili- 
ties upon  the  part  of  the  railroads,  but  on  the 
contrary  there  is  every  reason  why  they  should 
not  do  so. 


135 

EXCESS  EABNINQS 

In  order  to  dispose  of  excess  earnings  the 
following  is  suggested  by  the  Securities  Hold- 
ers, viz : 

"If  any  of  the  railways  shall  earn  a  rate  of 
return  in  any  one  year  greater  than  six  per 
cent.  *  *  *  the  excess  shall  be  devoted  to  the 
following  purposes : 

"(a)  Thirty-three  and  one-third  per  cent, 
shall  be  set  aside  as  a  fund  to  be  used  for  the 
benefit  of  the  employees  under  the  plan ; 

"  (b)  Thirty-three  and  one-third  per  cent,  of 
such  excess  shall  be  returned  to  or  retained  by 
the  railroad  company  for  its  own  use ; 

"(c)  Thirty-three  and  one-third  per  cent, 
shall  be  held  in  the  fund  to  be  devoted  to  the 
purposes  provided  under  the  plan  and  under 
the  direction  of  the  regional  commissions,  or 
Interstate  Commerce  Commission." 

There  is  very  good  reason  for  the  belief  that 
the  Senate  Interstate  Commerce  Committee 
are  greatly  concerned  over  the  matter  of 
widely  divergent  earnings  of  those  carriers 
who  operate  parallel  competing  lines  of  rail- 
way between  common  points.  The  four  rail- 
ways operating  between  Xew  York  and  Chi- 
cago are  compelled  to  have  the  same  rates  and 
fares  between  all  common  and  competitive 


136 

points.  No  two  of  the  roads  have  the  same 
transportation  expense,  and  as  a  consequence 
their  earnings  differ  widely.  The  rate  that 
will  give  one  of  these  carriers  a  large  net  earn- 
ing will  produce  for  another  no  net  earnings 
whatever.  As  the  rates  must  remain  the  same 
on  all  these  lines,  there  necessarily  results  an 
excess  earnings  or  profit  to  one  while  on  the 
others  the  earnings  are  comparatively  low. 
What  shall  be  done  with  these  excess  earnings 
—let  us  say  for  example,  of  the  New  York  Cen- 
tral— is  a  very  practical  question  which  con- 
tinually comes  up  for  solution.  The  Securities 
Holders  propose  to  divide  this  excess  into 
three  equal  parts,  giving  one  to  the  employees, 
one  to  the  railway  company,  and  the  other  to 
go  to  a  fund  with  which  to  provide  equipment 
for  railways  generally  that  needed  financial 
assistance. 

We  can  better  appreciate  both  the  weakness 
and  the  strength  of  this  plan  of  disposing  of 
excess  earnings  by  applying  it  to  concrete 
cases  and  demonstrate  how  it  will  work  out  in 
actual  practice.  Taking  the  earnings  of  the 
Philadelphia  and  Eeading  and  the  Baltimore 
and  Ohio  Kailways  for  the  year  ending  Decem- 
ber 31, 1917,  we  can  make  the  comparisons  that 
will  illustrate  the  workings  of  the  plan.  The 


137 

P.  &  K.  operated  1,126  miles  of  road  and  had  a 
net  income  of  $8,548,000.  The  capital  stock 
was  $114,843,000.  Six  per  cent,  on  this— the 
sum  proposed  to  be  earned — amounts  to 
$6,890,580,  which  would  be  the  dividend  per- 
mitted on  the  outstanding  stock  before  any 
surplus  earnings  could  accrue.  This  dividend 
taken  from  net  earnings  will  leave  $1,657,420, 
as  the  excess  earnings  to  be  distributed.  The 
employees  would  receive  one-third  of  this  sum, 
amounting  to  $552,473.00,  in  addition  to  their 
regular  wages. 

Only  the  outstanding  stock  of  these  roads 
is  being  used  to  represent  property  invest- 
ment in  these  illustrations.  The  B.  &  O.  oper- 
ated 4,723  miles  of  road,  which  produced  a 
net  earning  of  $8,095,000.  Six  per  cent,  on  its 
stock  ($210,000,000)  is  $12,600,000,  which 
would  have  to  be  paid  before  there  could  be 
any  excess  earnings  to  divide.  But  the  earn- 
ings lacked  $4,515,000  of  paying  dividends,  so 
there  would  be  no  excess  earnings  and  the 
employees  of  the  B.  &  O.  would  receive  nothing 
but  their  wages. 

ONE-THIKD  OF  EXCESS  TO 
EMPLOYEES 

If  this  plan  should  be  adopted  how  would  it 
affect  the  employees  and  what  influence  would 


138 

it  have  on  their  wages,  their  morale  and  their 
loyalty  and  how  much  better  service  would 
they  give? 

It  must  be  assumed  that  the  B.  &  O.  em- 
ployees were  just  as  faithful  and  as  competent 
and  worked  just  as  hard  for  the  interest  of 
their  employer  as  the  employees  of  the  P.  &  R. 
At  the  end  of  the  year,  however,  they  will  see 
a  great  banquet  spread  for  the  P.  &  R.  men, 
at  which  there  will  be  more  than  half  a  mil- 
lion dollars  divided  up  among  them  while  the 
B.  &  O.  men  will  receive  nothing,  although  they 
did  as  much  work  and  did  it  as  well  as  the 
others.  No  argument  will  convince  them  that 
they  are  not  entitled  to  receive  the  same  com- 
pensation for  the  same  kind  and  quantity  of 
work  that  is  paid  to  any  other  railway  em- 
ployees. Immediately  there  is  a  demand  for 
an  increase  in  wages,  and  if  not  granted  they 
will  be  discouraged  and  take  less  interest  in 
their  work.  This  same  apathy  would  extend 
to  the  employees  of  every  other  railway  that 
had  no  excess  earnings  to  divide  resulting  in 
discontent  and  inefficiency  among  most  of  the 
railway  employees  in  the  United  States. 

Those  employees  who  would  not  receive  any 
excess  earnings  would  be  endeavoring  to  find 
employment  with  the  railways  that  were  mak- 


139 

ing  them.  Wages  could  not  be  so  adjusted  as 
to  provide  for  obtaining  the  third  of  excess 
earnings,  as  it  could  not  be  determined  in  ad- 
vance what  they  would  be.  The  employees 
would  be  constantly  finding  fault  with  the 
management  because  excess  earnings  were  not 
provided.  This  would  give  rise  to  a  demand 
that  the  rate  schedules  be  raised  so  as  to  in- 
sure the  excess,  and  this  would  be  a  never- 
ending  source  of  annoyance  and  confusion  to 
the  rate-making  authorities.  This  program 
would  seriously  embarrass  the  management 
and  hamper  it  in  its  ability  to  give  the  public 
proper,  service. 

How  would  this  excess  be  divided  between 
the  employees  entitled  to  it?  If  the  division 
should  be  on  the  basis  of  the  wages  paid,  there 
would  be  a  conflict  of  interest  among  those 
whose  wages  were  unequal  in  amounts.  The 
low  wage  man  would  clamor  for  a  raise  while 
the  best  paid  would  endeavor  to  keep  all  other 
wages  as  low  as  possible.  Any  change  of  wage 
schedules  would  meet  the  condemnation  of  all 
those  employees  whose  portion  of  the  division 
would  be  adversely  affected. 

All  in  all,  it  is  perfectly  apparent  that  no 
greater  cause  of  unrest,  discontent  or  ineffi- 
ciency among  railway  employees  can  be  imag- 


140 

ined  than  the  proposed  plan  of  a  division  of 
excess  earnings. 

The  fundamental  weakness  of  this  plan  is 
the  assumption  that  the  employees  are  enti- 
tled to  a  share  of  the  excess  earnings.  It  must 
be  the  policy  of  every  successful  carrier  to  pay 
the  employees  full  and  generous  compensation 
in  the  shape  of  wages  for  all  the  work  they  do, 
including  their  skill,  ability,  and  loyalty  to  the 
company.  It  must  be  assumed  that  railway 
employees  in  the  main  are  composed  of  a  class 
of  men  who  will  give  their  honest  and  best  en- 
deavor to  their  business  when  they  feel  that 
they  are  receiving  just  and  ample  pay  for  what 
they  do.  This  proposed  division  of  excess 
earnings  is  based  upon  the  assumption  that 
the  employees  will  not  do  their  duty  as  well 
as  they  can,  even  though  their  wages  are  per- 
fectly satisfactory,  and  in  order  that  they  may 
be  induced  to  do  better  work  they  must  be 
tempted  by  the  promise  of  more  money,  which 
they  have  not  justly  earned.  I  do  not  believe 
that  this  assumption  is  in  any  way  justified 
for  it  suspicions  the  integrity  of  these  men, 
which  in  a  large  measure  cannot  be  impeached. 

The  money  which  is  proposed  to  be  divided 
either  justly  belongs  to  the  railway  which 
earned  it  or  to  the  public  from  whom  it  was 


141 

taken.  The  employees  have  no  claim  upon  it 
legally  or  morally.  The  fund  was  produced 
through  a  rate  structure  made  necessary  by 
the  economic  conditions  of  the  country  in  con- 
nection with  the  physical  situation  of  other 
and  competing  carriers.  The  employees  have 
nothing  whatever  to  do  with  either  one  of 
these  co-operating  causes.  For  all  that  they 
do,  they  are  paid  a  just  and  satisfactory  com- 
pensation. The  men  who  furnish  supplies,  en- 
gines, cars,  rails  and  ties,  and  other  equipment 
used  in  transportation,  for  which  they  have  all 
been  paid  the  full  value,  are  as  legitimately 
entitled  to  share  in  the  division  of  excess  earn- 
ings as  the  employees.  They  both  contribute 
their  time  and  energies  to  the  general  trans- 
portation enterprise.  One  is  as  essential  as 
the  other.  The  skill  and  fidelity  of  the  engine 
builder  is  entitled  to  as  much  consideration  as 
the  experience  and  loyalty  of  the  engineer  who 
handles  it,  and  both  alike  contribute  to  the 
successful  movement  of  trains.  The  proposal 
when  stripped  of  verbiage  means  the  taking 
by  legislative  enactment  of  money  belonging 
to  one  person  and  giving  it  to  another  who  has 
no  more  claim  upon  it  than  others  who  have 
contributed  to  the  success  of  the  general  enter- 
prise. 


142 

This  would  be  class  legislation  of  the  crass- 
est kind,  and  class  legislation  is  most  repre- 
hensible from  every  point  of  view.  To  select 
from  the  mass  of  the  public  a  particular  class 
of  men,  whether  they  be  workmen,  employers, 
or  professional  men,  and  make  them  the 
spoiled  petted  favorites  of  governmental  care 
and  partiality,  is  a  gross  perversion  of  all  the 
fundamentals  of  a  free  people  who  are  equal 
before  the  law.  Such  a  policy  would  breed  a 
spirit  of  resentment,  and  sow  the  seeds  of  dis- 
cord among  men,  culminating  in  overwhelm- 
ing disaster.  The  general  public  will  not  sub- 
mit for  long,  patient  though  they  are,  to  an 
injustice  of  which  they  are  the  acknowledged 
victims.  Class  legislation  is  the  forerunner 
of  class  war,  and  class  war  strikes  at  the  root 
of  civilization. 

Railway  employees,  as  well  as  others, 
should  be  treated  as  citizens  and  free  men, 
having  the  ability  to  manage  their  own  affairs 
in  their  own  way.  What  they  demand,  and 
are  rightly  entitled  to,  is  justice  and  not  char- 
ity. They  will  resent  and  scorn  the  idea  that 
they  are  dependents  upon  a  governmental 
benevolence  not  given  to  their  fellow  working- 
men. 

If  they  desire,  as  many  of  them  do,  to  par- 


143 

ticipate  in  the  profits  earned  by  the  carrier 
that  employs  them,  they  can  purchase  the 
stocks  of  the  company,  and  they  should  be  paid 
sufficient  wages  to  enable  them  to  do  so  if  they 
should  so  elect.  It  would  add  very  much  to 
their  feeling  of  independence  and  manliness  to 
know  that  they  had  earned  their  property,  and 
had  not  come  by  it  as  a  dole  through  govern- 
mental favoritism. 

In  order  that  another  third  of  the  excess 
earnings  may  be  disposed  of,  the  Securities 
Holders  plan  provides  that  through  a  Na- 
tional Eailway  Association,  composed  of  In- 
terstate Commerce  Commissioners  and  repre- 
sentatives of  the  railways,  this  money  can  be 
used  to  aid  railways  in  providing  their  neces- 
sary equipment. 

This  proposition  is  an  acknowledgment  that 
the  plan  of  the  Securities  Holders  will  not  give 
to  the  railways  sufficient  credit  to  enable  them 
to  secure  all  the  additional  capital  necessary 
for  their  purposes  by  issuing  additional  se- 
curities. Yet  the  railways  must  have  this 
credit  as  a  condition  precedent  to  any  efficient 
system  of  transportation  which  the  Congress 
may  establish.  It  is  necessary  that  a  scheme 
of  recapitalization  must  be  so  ordained  that 
it  will  place  the  railways  on  a  safe  and  certain 


144 

financial  basis.  This  is  the  foundation  stone 
upon  which  the  whole  structure  of  railway  ef- 
ficiency must  rest. 

The  suggestion  that  independent  associa- 
tions or  corporations  be  formed  for  the  pur- 
pose of  financing  the  railways,  and  aiding  them 
to  provide  new  capital  for  equipment  or  ex- 
tensions, or  terminal  facilities,  is  an  admis- 
sion of  weakness  that  will  perpetuate  the  evils 
that  are  driving  them,  into  bankruptcy.  This 
suggestion  may  be  based  however  upon  the 
necessity  of  finding  some  method  whereby  ex- 
cess earnings  may  be  distributed  so  as  to  ex- 
cite the  least  unfavorable  comment. 

WHAT  SHALL  BE  DONE  WITH  EXCESS 
EABNINGS? 

This  question  is  receiving  the  serious  con- 
sideration of  the  Senate  Committee  who  are 
called  upon  to  deal  with  all  the  problems  con- 
nected with  the  reorganization  of  our  whole 
transportation  system. 

Operating  under  the  same  rate  schedules 
between  the  same  points,  some  of  the  carriers 
will  show  much  greater  net  earnings  than 
others.  When  the  rates  are  so  adjusted  as  to 
give  the  weaker  roads  enough  income  to  secure 
a  proper  return  to  their  stockholders,  the  same 


145 

rate  structure  will  yield  to  the  stronger  roads 
an  earning  that  may  be  deemed  excessive.  The 
rates  and  charges  between  common  or  com- 
petitive points  cannot  be  changed,  but  must 
remain  the  same  for  all  the  roads  whose  lines 
reach  these  points.  The  members  of  the  Sen- 
ate Committee  are  deeply  concerned  over  the 
matter  of  disposing  of  the  earnings  that  are 
to  be  considered  excessive.  The  difficulty  sur- 
rounding this  particular  problem  is  one  of  the 
least  which  the  committee  will  have  to  solve. 
It  is  always  easier  to  distribute  money  than 
it  is  to  accumulate  it,  and  this  situation  is  no 
exception  to  the  rule. 

These  excess  earnings  can  be  greatly  dimin- 
ished by  the  establishment  of  a  more  equitable 
basis  of  the  traffic  arrangements  between  the 
stronger  and  the  weaker  roads  than  has  here- 
tofore prevailed.    This  can  be  done  by— 
(1)   Giving  to  the  weaker  carriers  a  larger 
proportion    in    prorating    with    the 
stronger  carriers  in  all  interchanges 
of  traffic  between  them.    In  the  main 
the  stronger  carriers  take  the  lion's 
share  of  the  joint  rate,  which  they 
can  compel  by  reason  of  their  advan- 
tageous position.    This  practice  can 
be,  and  should  be  reversed,  in  all 

10 


146 

cases  where  the  strong  road  will  have 
an  excess  earning.  The  strong  roads 
can  be  required  to  accept  a  much 
smaller  share  of  the  joint  profit  than 
the  weaker  ones. 

(2)  Entering  into  pooling  and  joint  opera- 

tion agreements,  with  the  Interstate 
Commissioners'  approval  between  the 
strong  and  weak  roads,  with  such 
consolidations  as  will  not  be  detri- 
mental to  the  public  welfare,  and 

(3)  charging  the  weak  carriers  a  smaller 

sum  for  car  rentals  when  on  their 

lines. 

In  many  ways  the  roads  having  excess  earn- 
ings can  favor  the  weaker  roads,  thereby  ma- 
terially reducing  their  excess  earnings. 

( 4 )  Another  very  effective  way  by  which  ex- 
cess earnings  may  be  lessened  would  be  to  re- 
duce non-competitive  rates  and  fares.     Such 
rates  and  fares  can  be  reduced  where  they  are 
purely  local  and  can  only  affect,  in  a  remote 
way,  the  local  fares  and  rates  on  the  weaker 
lines  in  other  localities.    In  many  cases  these 
drains  upon  the  fund  of  excess  earnings  would 
entirely  absorb  the  excess. 

Taxation. — If,  however,  there  should  remain 
the  menace  of  excess  earnings  after  the  fore- 


147 

going  demands  have  been  met,  the  whole 
amount  of  it  can  be  dissipated  by  a  process  of 
a  graduated  excess  profits  tax.  The  Act  of 
Congress  can  provide  that  all  net  earnings  in 
excess  of  ten  per  cent,  and  not  more  than 
twelve  per  cent,  should  be  taxed  twenty-five 
per  cent.,  that  earnings  in  excess  of  twelve  per 
cent,  and  not  more  than  fifteen  per  cent,  should 
pay  a  tax  of  fifty  per  cent.,  and  all  over  fifteen 
per  cent,  should  pay  a  tax  of  75  per  cent, 
—these  taxes  to  be  paid  to  the  Federal  Gov- 
ernment. 

This  policy  of  taxation  would  operate  so 
that  the  strong  carriers  would  give  all  the  as- 
sistance possible  to  the  weaker  ones,  and  at 
the  same  time  would  bring  about  reduced  local 
charges.  It  would  tend  to  promote  consolida- 
tions, pooling  arrangements  and  the  joint  use 
of  equipment,  tracks  and  terminals.  Co-oper- 
ation would  be  encouraged,  and  at  the  same 
time  the  initiative  of  individual  management 
would  be  preserved  and  rewarded.  The  Gov- 
ernment would  receive  additional  revenues, 
and  the  public  secure  the  best  possible  service. 


PLAN  OF  THE  EAILWAY  EXECUTIVES 

The  executive  officials  of  the  railways  have 
submitted  a  plan  of  reorganization  to  the  Sen- 
ate Interstate  Commerce  Committee,  the  main 
feature  of  which  is  to  have  a  minister  of  trans- 
portation as  a  member  of  the  President's  cab- 
inet. This  cabinet  officer,  together  with  the 
Interstate  Commission,  would  be  vested  with 
supreme  regulatory  power  over  the  railways. 
It  was  evidently  the  belief  of  the  railway  ex- 
ecutives that  being  a  member  of  the  Presi- 
dent's official  family  this  minister  would  be  in 
a  position  to  secure  from  the  national  admin- 
istration, including  the  Interstate  Commis- 
sion, a  fuller  measure  of  justice  for  the 
railways  than  had  heretofore  obtained.  At 
the  threshold  of  this  proposition  comes  up  the 
question :  Will  the  minister  dominate  the  Pres- 
ident, or  will  the  President  control  the 
minister  in  all  those  matters  pertaining  to 
transportation?  Serious  objections  to  this 
plan  have  been  interposed  by  those  who  have 
spoken  and  written  upon  this  plan.  Some  of 
these  objections  have  been  stated  by  the  Secur- 
ities Holders  as  follows : 

"We  live  under  a  partisan  form  of  gov- 
148 


149 

eminent.  A  proposal  to  turn  these  prop- 
erties over  to  a  newly  appointed  cabinet 
officer  with  the  political  power  possible 
under  such  proposal,  would  seem  to  sub- 
stitute a  political  form  of  control  for  a 
non-political  regulatory  body  like  the  In- 
terstate Commerce  Commission.  It  would 
be  unfortunate  to  create  a  situation  under 
which  these  great  properties  might  be  car- 
ried into  politics  by  placing  them  under  a 
cabinet  officer  subject  to  change  every 
four  years,  and  in  the  present  case  in  two 
years.  It  would  make  the  railroads  the 
political  center  of  the  presidential  cam- 
paign soon  to  open.  The  execution  of 
practical  matters  affecting  railroad  serv- 
ice and  credit  during  the  reconstruction 
period  before  us  is  altogether  too  vast  and 
serious  to  be  intrusted  to  a  newly  created 
cabinet  official  whose  qualifications  are 
now  unknown.  The  occasion  is  imme- 
diate, decision  is  required,  and  the  man- 
ner of  execution  of  what  may  be  decided 
upon  is  vital  to  the  business,  financial  and 
agricultural  interests  of  the  country  and 
to  the  general  public." 

One  of  the  most  eminent  students  of  railway 
problems,  in  speaking  of  this  plan,  says : 


150 

"The  plan  proposed  by  the  railway  ex- 
ecutives would  not  provide  any  real  pro- 
tection for  their  security  holders.  It 
would  not  correct  the  radical  defects  of 
the  existing  relations  between  the  Gov- 
ernment and  the  companies,  but  it  would 
complicate  these  relations  and  provide 
new  kinds  of  governmental  control.  It 
would  furnish  new  formulas  for  making 
rates,  and  new  grounds  for  litigation  and 
for  court  reviews,  but  it  would  not  furnish 
the  companies  with  a  sound  basis  for  ob- 
taining the  credit  which  they  need.  It 
would  fail  to  put  an  end  to  the  recurring 
cycles  of  railroad  bankruptcies  and  reor- 
ganizations." 
The  following  reasons  may  be  considered  as 

emphasizing  the  causes  for  opposing  the  plan 

offered  by  the  railway  executives : 

FKEE  FEOM  POLITICAL  INFLUENCE 

Political  parties  now  exercise  the  governing 
power  in  every  civilized  country  in  the  world. 
The  leaders  of  these  organizations  are  seeking 
support  from  those  who  are  able  to  influence 
the  voters  in  their  behalf.  Without  this  sup- 
port the  party  would  disintegrate  and  go  to 
pieces,  and  the  leaders  would  be  supplanted  by 


151 

other  men  who  would  assume  the  reins  or  gov- 
ernment. The  aspiration  of  every  political 
party,  and  especially  the  men  who  shape  its 
destinies,  is  to  get  into  power  and  to  keep  the 
control  in  their  own  hands.  The  power  of  the 
distribution  of  patronage  to  their  adherents 
cannot  be  overestimated.  In  the  very  nature 
of  things  the  strength  of  the  party  and  its 
leaders  will  be  increased  in  proportion  to  the 
number  of  places  they  have  to  fill  with  their 
own  political  supporters.  These  places  are 
sought  not  only  for  the  compensation  they  pay 
but  more  often  to  gratify  the  perfectly  laud- 
able ambition  of  the  applicant.  The  desire  to 
be  the  postmaster  in  a  country  village  is  just 
as  strong  in  the  minds  of  the  men  who  want 
the  place  as  is  the  desire  to  be  a  senator  of  the 
United  States  in  the  minds  of  other  men.  And 
in  nearly  every  instance  the  small  postmaster 
is  truly  loyal  to  the  men  and  the  party  from 
whom  he  receives  his  appointment,  and  can 
be  depended  upon  to  use  all  his  energies  to 
rally  his  friends  to  their  support  when  the  oc- 
casion presents  itself.  These  subordinate 
place  holders  form  the  nucleus  of  the  local  or- 
ganization upon  which  the  candidates  for  state 
and  national  officers  largely  depend  for  suc- 
cess. It  requires  no  argument  to  prove  that 


152 

these  men  are  selected  because  of  their  ability 
to  bring  support  to  the  party  candidate,  rather 
than  on  account  of  their  fitness  to  discharge 
the  duties  of  the  place.  The  inevitable  conse- 
quence of  this  system  is  inefficiency  and  waste 
of  public  money.  It  can  be  accepted  as  a 
truism  without  a  single  exception  in  all  demo- 
cratic governments,  that  the  government  can- 
not carry  on  any  business  as  economically  and 
efficiently  as  private  management.  Wherever 
the  attempt  has  been  made  it  has  resulted  in 
poor  service  and  accumulating  deficits  which 
the  taxpayer  must  make  good.  The  adminis- 
tration of  our  postal  system  under  all  parties 
has  been  so  inefficient  that  it  has  been  a  great 
burden  on  the  taxpayers  to  meet  the  losses. 
The  reason  for  this  is  that  our  postal  system 
has  been  treated  more  as  a  partisan  asset  than 
a  business  enterprise.  If  we  will  keep  in  mind, 
that  every  appointment  the  Federal  Govern- 
ment has  to  give  out  is  an  asset  of  the  party 
in  power,  it  would  be  asking  too  much  of 
human  nature  to  expect  that  the  party  in 
power  would  not  use  its  assets  for  partisan 
political  purposes.  Of  course  we  all  realize 
that  this  practice  makes  for  political  strength 
and  solidarity  at  the  expense  of  business  ef- 
ficiency. If  party  expediency  is  permitted  to 


153 

control  or  influence  the  administration  of  pub- 
lic business,  if  the  appointing  power  can  sway 
the  judgment  or  findings  of  any  administra- 
tive or  judicial  tribunal  exercising  federal  au- 
thority, the  public  must  suffer  and  make  good 
the  waste  or  ultimately  go  into  revolution  as 
a  protest  against  the  wrongs  and  outrages  of 
maladministration. 

The  interest  of  the  public  in  a  transporta- 
tion system  that  will  meet  all  the  requirements 
of  public  service  is  so  vital  that  the  federal 
regulatory  tribunal  should  be  removed  from 
the  possibility  of  partisan  bias  influencing  its 
action.  It  is  for  this  consideration  that  Con- 
gress should  clothe  the  Interstate  Commis- 
sion, and  the  National  Transportation  Court 
with  the  same  independence  and  freedom  of 
action  that  belongs  to  the  Federal  judiciary. 
This  can  be  accomplished  by  giving  large  sal- 
aries and  long  appointments,  and  making  re- 
movals only  by  process  of  impeachment.  Give 
to  these  tribunals  both  independence  and 
power,  and  they  will  mold  and  fashion  all  our 
transportation  problems  into  a  harmonious 
and  unified  system  that  will  give  to  the  public 
the  fullest  measure  of  justice  and  service. 

On  the  other  hand,  if  the  tribunals  of  Fed- 
eral regulation  of  the  railways  are  subject  to 


154 

any  partisan  political  influence,  they  will  dis- 
appoint the  public;  they  cannot  be  efficient, 
and  the  system  of  transportation  which  they 
are  called  on  to  administer  will  fail  almost 
before  it  starts. 


EEGIONAL  EAILWAYS 

It  has  been  proposed  that  the  whole  coun- 
try shall  be  divided  up  into  regions  or  zones 
to  the  number  ranging  from  five  to  eighteen, 
and  for  each  of  these  a  railway  company  will 
be  organized  under  a  Federal  charter,  which 
shall  own  and  operate  all  the  lines  of  railway 
situate  in  the  particular  territory.  This  plan 
contemplates  that  a  few  mammoth  railway 
corporations  shall  conduct  all  the  transporta- 
tion for  the  entire  United  States.  In  the  fol- 
lowing language  the  plan  has  been  outlined  by 
Mr.  Victor  Morawetz : 

(1)  "A  Federal  Eailway  Board  to  be  cre- 
ated with  Supreme  power  of  regulation  and 
control  over  the  Federal  Eailway  companies 
to  be  formed  as  herein  provided  *  *  *  *. 

(2)  "The  Federal  Eailway  Board  to  organ- 
ize ten  to  fifteen  Federal  railway  companies 
under  the  Act  of  Congress.     Each  of  these 
companies  to  have  the  usual  powers  of  rail- 
way companies,  and  also  power  with  the  ap- 
proval of  the  Federal  Eailway  Board  to  ac- 
quire all  or  any  existing  lines  of  railway.    In 
carrying  out  the  plan  the  existing  lines  to  be 
consolidated  in  the  Federal  corporations  as 

155 


156 

directed  by  the  Federal  Kailway  Boarcl  in 
such  manner  as  to  make  ten  to  fifteen  well- 
balanced  railway  systems." 

This  proposal  has  encountered  the  opposi- 
tion of  the  Eailway  Securities  Holders  who 
have  given  expression  to  lack  of  sympathy 
with  it  as  follows : 

"This  objection  to  the  regional  plan  may  be 
stated : 

"(a)  The  area  of  each  of  the  (five)  regional 
districts  suggested  would  be  more  than  the 
area  of  England  and  France  combined.  Eng- 
land and  France  are  densely  populated  and 
their  railroads  serve  most  of  the  area  required 
to  be  served,  whereas  in  this  country  a  large 
portion  of  the  area  of  many  of  the  regional 
districts  suggested  will  be  found  not  to  be 
fully  served  by  railroad  facilities ;  the  concen- 
tration incident  to  this  plan  must  necessarily 
check  agricultural  and  industrial  develop- 
ment, to  be  had  chiefly  through  individual  in- 
itiative and  incentive  in  railroad  construction, 
operation  and  management  *  *  *  *  *  . 

"(c)  It  draws  the  railroads  closer  to  the 
general  principles  involved  in  Government 
ownership.  It  saps  initiative  and  incentive 
by  combining  into  five  areas,  several  of  them 
largely  undeveloped,  all  railroads  under  five 


157 

managements  which  the  plan  proposed  shall 
be  largely  governmental;  why  not  therefore 
follow  the  plan  devised  by  many  advocates  of 
Government  ownership  by  forming  one  large 
company  and  take  over  the  railroads?  The 
only  difference  is  there  are  regional  companies 
that  correspond  to  regional  reserve  banks  as 
against  the  policy  first  announced  in  respect 
to  the  Federal  Keserve  System  of  one  central 
bank. 

"Practically  the  difficulty  of  bringing  about 
one  complete  consolidation  of  all  railroads  is 
no  greater  than  that  of  five  regional  consoli- 
dations; the  latter  having  all  the  disadvan- 
tages of  limitation  of  service  and  facilities  in- 
cident to  concentration  and  reaches  the  point 
where  further  contraction  would  make  little 
difference.  It  would  result  really  in  five  Gov- 
ernment ownerships  instead  of  one,  with  the 
money  supplied  by  private  means. 

" (d)  To  those  who  believe  that  in  an  indus- 
try of  this  magnitude,  upon  which  is  dependent 
the  agricultural  and  industrial  growth  of  the 
country,  regulated  competition  or  competitive 
service  is  essential  to  good  and  effective  serv- 
ice, this  plan  does  not  appeal." 

The  foregoing  criticism  takes  no  note  of  any 
of  the  good  features  of  the  scheme  for  regional 


158 

railways,  but  contents  itself  with  pointing  out 
the  manifest  defects. 

The  plan  recognizes  and  emphasizes  the  ne- 
cessity for  the  creation  by  Act  of  Congress  of 
"A  Federal  Kailway  Board  with  supreme 
power  of  regulation"  over  the  railways.  To 
the  necessity  for  the  establishment  of  such  a 
tribunal  every  one  who  has  had  any  experi- 
ence with  existing  regulatory  commissions 
must  give  their  unqualified  assent.  All  those 
who  have  given  any  opinion  on  the  subject 
have  been  of  one  mind  in  regard  to  having  one 
centralized  body  vested  with  full  power  to  ex- 
ercise a  regulatory  authority  over  the  whole 
subject  of  transportation.  This  power  must 
extend  to  a  supervision  over  all  security  is- 
sues, and  recapitalization  of  the  railways,  as 
well  as  rate  making,  consolidations,  pooling 
arrangements,  settling  labor  controversies  and 
every  other  transportation  question  that  can 
possibly  arise.  Some  have  thought  that  the 
Interstate  Commerce  Commission  could  be  so 
reorganized  that  it  could  act  as  this  supreme 
governing  head,  and  their  plans  have  made 
provision  for  innumerable  aids  in  the  form  of 
regional  and  other  new  commissions  to  be  cre- 
ated for  the  purpose  of  relieving  the  Interstate 
Commission  of  its  new  and  increasing  bur- 


159 

dens.  Under  the  plan  suggested  by  Mr.  Mora- 
wetz  for  a  Federal  Railway  Board,  it  is  clear 
that  the  Board  would  not  be  empowered  to  ex- 
ercise judicial  functions  as  well  as  adminis- 
trative duties.  In  the  plan  which  I  suggest 
this  tribunal  is  called  The  National  Transpor- 
tation Court,  for  the  obvious  reason  that  such 
a  body  must  exercise  both  judicial  and  admin- 
istrative power.  No  transportation  system 
can  be  complete  or  even  efficient  unless  the 
legal  jurisdiction  of  court  reviews  is  taken  out 
of  the  existing  Federal  courts  of  original  jur- 
isdiction and  vested  in  a  single  court  estab- 
lished for  that  purpose.  The  saving  in  time 
and  expense  to  the  litigants  demand  that  such 
a  tribunal  have  and  exercise  judicial  power 
over  all  processes  of  court  review.  This  pro- 
cedure would  develop  and  maintain  a  certain 
and  dependable  system  of  the  law  of  transpor- 
tation. The  suggestion  of  a  Federal  Eailway 
Board  with  supreme  regulatory  power  is  an 
an  excellent  one,  but  it  should  likewise  be 
vested  with  the  necessary  judicial  power  to  in- 
sure a  competent  and  speedy  court  review,  if 
Congress  can  give  it  such  power. 

Some  additional  objections  to  the  plan  for 
the  establishment  of  regional  railways  may 
not  be  out  of  place.  The  regional  railway  plan 


160 

is  cumbered  with  too  much  new,  complex  and 
intricate  machinery.  The  various  agencies 
and  governmental  tribunals  which  must  co- 
operate in  order  to  put  the  scheme  in  working 
order  are : 

(1)  A  Federal  Bailway  Board, 

(2)  Ten  to  fifteen  regional  boards, 

(3)  One  central  board, 

(4)  Forty-eight  State  Commissions, 

(5)  All  the  United  States  Courts,  of  both 

original  and  appellate  jurisdiction, 

(6)  Ten  to  fifteen  Federal  railway  corpora- 

tions, 

(7)  And  all  existing  companies  operating 

under  State  charters  that  decline  to 
go  into  the  Federal  plan. 

The  burdensome  character  of  all  this  ma- 
chinery can  be  illustrated  by  applying  it  to  a 
concrete  case,  and  demonstrating  how  it  will 
work  out  in  actual  practice  after  it  has  been 
adopted  by  Act  of  Congress.  The  plan  says : 

"Except  as  to  rates  and  as  to  other  matters 
of  which  the  Interstate  Commerce  Commis- 
sion now  has  exclusive  jurisdiction  the  exist- 
ing compaies  to  remain  subject  to  regulation 
by  the  several  States." 

A  shipper  brings  a  proceeding  before  a 
State  Commission  against  an  existing  railway 


161 

to  correct  what  he  alleges  to  be  an  unjust  or 
discriminatory  intrastate  rate.  After  many 
months  of  taking  several  volumes  of  testi- 
mony pro  and  con,  the  case  is  submitted  and 
the  Commission  issues  an  order  to  the  railroad 
to  correct  the  rate  or  discrimination  as  the  case 
may  be.  The  railway  instead  of  obeying  this 
order,  brings  a  suit  in  a  Federal  District 
Court  to  enjoin  the  Commission  from  enforc- 
ing its  order.  To  the  plaintiffs  bill  in  equity 
the  Commission  files  its  answer,  and  issue  is 
joined.  The  case  is  referred  to  a  master  in 
chancery,  who  spends  several  months  in  tak- 
ing evidence,  upon  which  he  finally  makes  his 
report  to  the  court.  One  side  and  often  both, 
file  exceptions  to  the  report.  The  court  fixes 
some  day  in  the  future  when  its  time  is  not  oc- 
cupied with  other  business  when  it  will  hear 
argument  of  counsel.  After  listening  to  the 
oral  argument  counsel  are  required  to  file 
printed  briefs.  The  court  must  examine  the 
whole  record,  including  all  the  evidence  taken 
before  the  Commission,  as  well  as  that  pro- 
duced before  the  master.  Most  of  this  record 
is  the  testimony  of  conflicting  experts  concern- 
ing which  the  court  has  no  technical  knowl- 
edge. The  judges  doing  the  best  they  can,  how- 
ever, finally  reach  a  conclusion  and  perpetu- 
ii 


162 

ally  enjoin  the  enforcement  of  the  Commis- 
sion's order  correcting  the  rate  complained  of. 
Or  it  may  be  the  court  will  find  against  the 
railway  and  refuse  to  enjoin  the  order.  No 
matter  what  decision  the  court  renders  an  ap- 
peal is  taken  by  the  losing  side  to  the  Supreme 
Court,  and  after  pending  there  for  several 
months,  sometimes  a  year,  that  court  decides 
in  favor  of  granting  the  injunction  on  the 
ground  that  the  order  affects  Interstate  Com- 
merce and  the  State  Commission  had  no  jur- 
isdiction to  make  the  order.  This  leaves  the 
shipper  precisely  where  he  was  before  he  ap- 
plied to  the  State  Commission  to  correct  his 
grievances.  He  has  been  engaged  in  this  suit 
never  less  than  a  year,  and  often  as  much  as 
two  years,  to  find  nothing  accomplished  except 
serious  loss  in  time  and  money.  He  must 
either  submit  to  the  payment  of  the  unlawful 
rate  or  start  all  over  again  by  bringing  a  new 
proceeding  before  the  Eegional  Board. 

The  shipper  will  have  the  privilege  of  apply- 
ing to  the  Kegional  Board  to  hear  his  com- 
plaint. After  presenting  his  case  and  taking 
proof  before  the  Kegional  Board,  that  body 
will  render  its  decision  and  issue  its  order  of 
correction.  But  the  plan  provides : 

"But  no  regulation  by  a  regional  board  to 


163 

take  effect  until  approved  by  the  Central 
Board  of  Regulation."  This  proviso  makes  it 
necessary  to  take  the  case  on  appeal  to  the 
Central  Board,  where  it  will  be  gone  over  by 
that  board  for  the  purpose  of  approval  before 
the  order  can  become  effective.  This  will  re- 
quire argument  and  a  hearing  with  the  proba- 
bility of  taking  new  evidence  involving  time 
and  delay.  When  the  Central  Board  finally 
reaches  a  conclusion,  its  action  then  is  subject 
to  review  by  the  Federal  Kailway  Board.  This 
means  still  more  delay  before  an  enforcible 
order  can  be  issued.  For  the  scheme  provides 
further : 

"All  acts  and  decisions  of  the  Central  Board 
as  well  as  the  regional  boards  of  regulation  to 
be  subject  to  the  supreme  authority  of  the  Fed* 
eral  Kailway  Board.'' 

After  the  Federal  Kailway  Board  has  re- 
viewed the  case  and  approved  the  order  re- 
quiring the  railroad  to  correct  the  evil  com- 
plained of,  requiring  yet  more  time  and  delay, 
this  is  by  no  means  the  end  of  this  controversy. 
In  fact  it  is  just  the  beginning  or  laying  the 
foundation  of  a  lawsuit.  It  will  be  remem- 
bered that  these  boards  are  all  administrative 
and  none  of  them  are  vested  with  the  exercise 
of  judicial  powers.  That  the  railroads  are  en- 


164 

titled  to  have  a  court — a  tribunal  vested  with 
judicial  authority — review  the  orders  entered 
against  it  by  administrative  boards  or  com- 
missions. The  constitution  prohibits  the  tak- 
ing of  any  one's  property  without  due  process 
of  law,  and  in  rate  regulation  due  process  of 
law  gives  the  railways  the  right  to  have  ad- 
ministrative orders  reviewed  by  a  court  in  the 
exercise  of  its  judicial  powers.  After  trying 
the  case  in  the  regional  board,  then  in  the  cen- 
tral board  and  finally  before  the  Federal  Kail- 
way  Board,  winning  his  contention  in  all  of 
them,  the  shipper  at  last  is  met  with  an  injunc- 
tion proceeding  to  restrain  the  boards  from 
enforcing  the  order  against  the  carrier.  This 
is  a  regular  suit  in  equity  brought  in  one  of 
the  United  States  District  Courts,  where  the 
case  is  subject  to  the  usual  court  processes. 
Original  pleadings  are  filed  and  a  new  record 
made  upon  which  the  court  must  base  its  judg- 
ment. The  whole  matter  must  be  again  gone 
over  and  fought  out  in  the  District  Court  ac- 
cording to  the  rules  of  equity  procedure.  In 
the  course  of  time  the  District  Court  renders 
its  decision,  either  approving  the  order  or  en- 
joining its  enforcement.  By  a  regular  process 
of  appeal  the  case  is  taken  to  the  Supreme 
Court  for  final  judgment. 


165 

By  virtue  of  the  regional  plan  the  shipper 
who  is  a  victim  of  unlawful  discrimination, 
before  he  can  get  relief,  is  required  to  try  his 
case,  (1)  before  a  Eegional  Board,  and  (2) 
before  the  Central  Board,  and  (3)  in  the  Fed- 
eral Railway  Board,  and  (4)  in  a  District 
Court  of  the  United  States,  and  (5)  finally  in 
the  Supreme  Court  of  the  United  States.  To 
be  compelled  to  try  his  case  in  each  of  these 
five  separate  and  distinct  tribunals,  with  all 
the  expense  and  delay  incident  thereto,  is 
equivalent  to  a  denial  of  the  shipper's  right 
to  be  relieved  from  unjust  rates  and  unlawful 
discriminations.  It  must  be  apparent  that 
there  is  too  much  complex  machinery  involved 
to  make  the  plan  workable  so  as  to  be  expedi- 
tious or  efficient. 

In  contrast  with  this  plan  for  Regional  Rail- 
ways there  is  suggested  the  much  simpler 
method  of  a  hearing  before  the  State  Commis- 
sion, an  appeal  to  the  Interstate  Commission, 
with  a  right  to  a  court  review  by  the  National 
Transportation  Court  upon  the  record  made 
before  the  State  Commission.  This  plan  will 
eliminate  all  unusual  delays  and  expense,  and 
it  goes  without  question  that  the  plan  to  be 
adopted  should  be  very  simple,  and  give  to  the 


166 

shipper  Ms  redress  in  the  shortest  possible 
time. 

ADVANTAGE  OF  REGIONAL  KAIL- 
WAYS 

The  advocates  of  Regional  Railways  have 
advanced  but  few  arguments  in  support  of 
their  plan.  One  contentoin  is  that  as  our  finan- 
cial system  of  Regional  Banks  has  been  a  suc- 
cess, that  the  railways  should  be  organized 
and  operated  on  a  similar  regional  basis.  The 
assumption  is  that  any  enterprise  will  succeed 
if  it  can  possess  itself  of  a  regional  feature. 
This  is  reasoning  by  analogy  when  there  is  no 
similarity  between  banking  and  transporta- 
tion to  support  it.  There  is  not  even  a  resem- 
blance between  the  two  enterprises.  The  re- 
gional banks  are  intended  to  be  mere  aids  to 
the  member  banks  instead  of  merging  them 
all  into  one  gigantic  corporation.  The  mem- 
ber banks  retain  their  individuality,  and 
transact  their  local  business  in  their  own  way 
and  practically  in  the  same  manner  as  before 
the  regional  banks  were  formed.  Whereas  in 
the  plan  for  regional  railroads  it  is  proposed 
that  the  existing  railways  will  be  taken  over 
and  operated  by  a  Federal  corporation  hav- 
ing ownership  and  jurisdiction  over  twenty  or 


167 

twenty-five  thousand  miles  of  railway  wherein 
existing  companies  will  lose  their  charters  and 
their  identity.  Many  other  features  of  dissim- 
ilarity suggest  themselves  which  renders  this 
argument  of  analogy  untenable. 

The  principal  consideration,  however,  back 
of  the  purpose  to  establish  regional  railways 
is  the  belief  that  by  grouping  together  under 
one  ownership  and  management  all  the  rail- 
ways in  a  given  region  or  territory,  it  will  re- 
quire the  stronger  roads  in  the  group  to  sup- 
port the  weaker  ones.  In  this  way  it  is  thought 
that  the  excess  earnings  of  the  strong  lines  can 
be  so  distributed  as  to  help  those  whose  earn- 
ings are  much  smaller. 

The  best  method  to  distribute  excess  earn- 
ings has  been  discussed  herein  at  page  135,  and 
need  not  now  be  repeated.  A  fatal  defect  in 
this  process  of  reasoning  is  that  the  plan  for 
regional  railways  contemplates  that  existing 
railways  are  expected  to  go  into  the  regional 
scheme  voluntarily,  as  the  Federal  authorities 
will  not  compel  any  of  the  carriers  in  a  given 
zone  to  join  the  regional  plan  and  become  ab- 
sorbed by  it.  All  existing  carriers  may  stay 
out  if  they  choose,  and  continue  to  own  and 
operate  their  properties  under  State  charters 
in  the  same  manner  as  before  regional  rail- 


168 

ways  were  established.  The  inevitable  result 
would  be  that  all  the  weaker  roads  would 
rush  into  the  regional  system  in  order  to  re- 
ceive help  and  better  the  situation  of  their 
stockholders,  while  the  stronger  lines  would 
remain  out  rather  than  be  compelled  to  divide 
their  earnings  to  the  serious  injury  of  their 
own  stockholders.  Such  stockholders  would 
receive  a  greater  return  on  their  investment 
by  staying  out  than  by  going  in  to  the  new  ar- 
rangement. They  certainly  would  not  will- 
ingly surrender  their  great  advantage  to  their 
own  loss  of  income.  Under  the  regional  plan 
no  real  benefit  could  be  secured  by  the  weak 
lines  consolidating  with  each  other.  This  is 
obvious  and  the  plan  would  fail  to  accomplish 
its  principal  object. 

Even  though  all  the  roads  in  a  given  region 
should  be  compelled  by  Congress  to  surrender 
their  property  to  one  Federal  Kailroad  Cor- 
poration which  would  own  and  operate  all  the 
lines  as  a  single  unit,  the  result  would  be  pre- 
cisely the  same. 

The  inherent  weakness  of  the  plan  for  re- 
gional railroads  can  be  fully  shown  by  apply- 
ing it  to  a  concrete  case,  in  which  it  will  be 
demonstrated  that  the  plan  will  not  work  out 
in  actual  practice. 


169 

In  pursuance  of  the  plan  the  country  will 
be  divided  up  into  regions  for  each  of  which 
there  will  be  one  Federal  Kailway  Corpora- 
tion. This  Federal  company  will  issue  its 
stock  and  bonds  in  payment  for  all  the  rail- 
ways located  in  the  particular  territory.  The 
plan  provides  a  basis  for  the  issue  of  these  se- 
curities to  the  existing  security  holders  of  the 
various  railways  to  be  taken  over  by  the  Fed- 
eral company.  In  fixing  the  value  of  existing 
railways  the  following  method  is  provided : 

"It  is  submitted  that  the  only  fair  and 
practicable  way  of  measuring  the  value  of 
a  railroad  and  the  just  compensation  to 
which  its  owners  are  entitled  is,  (a)  To 
estimate  as  nearly  as  may  be  its  present 
and  prospective  true  operating  income, 
under  a  fair  as  well  as  constitutional  ex- 
ercise of  the  powers  of  regulation  vested 
in  the  Federal  and  State  governments, 
and  (b)  To  capitalize  this  true  operating 
income  at  a  fair  rate,  based  on  the  rate  of 
interest  or  profit  payable  to  obtain  capital 
and  on  any  risks  or  uncertainties  affect- 
ing the  railroad  and  its  future  operating 


income." 


This  method  is  proposed  in  order 

"to  establish  the  relative  value  of  the  sev- 


170 

eral  railways  to  be  vested  in  each  Federal 
corporation,  so  that  some  of  the  existing 
companies  may  not  obtain  an  advantage 
at  the  expense  of  the  others." 
Applying  these  provisions  to  the  Seaboard 
Air  Line  and  Norfolk  &  Western  Railways, 
the  following  results  are  obtained:     These 
two  railroads  are  used  for  illustration  as  they 
will  almost  certainly  be  located  in  the  same 
region,  and  be  merged  together  into  one  Fed- 
eral corporation. 

In  order  that  the  Federal  corporation  may 
know  how  much  stock  it  should  issue  in  pay- 
ment for  these  two  properties  it  becomes  nec- 
essary to  ascertain  their  respective  values. 
The  value  in  each  case  will  be  determined  by 
"estimating  as  near  as  may  be,  their  true  oper- 
ating income  *  *  *  and  then  capitalizing  this 
true  operating  income  at  the  prevailing  rate 
of  interest."  By  using  the  calendar  year  1917 
as  representing  this  income  we  find  that  in  the 
case  of  the  Norfolk  and  Western,  it  amounted 
to  $19,651,816.  Capitalizing  this  income  at 
six  per  cent,  the  value  of  the  property  is  found 
to  be  $327,530,000.  For  which  the  Federal 
corporation  would  issue  its  securities  in  an 
equal  amount.  But  the  present  outstanding 
stock  and  bonds  of  the  company  is  only  $234,- 


171 

948,000.  This  would  give  the  present  security 
holders  $92,582,000  more  stock  and  bonds  of 
the  Federal  company  than  they  now  possess. 
The  Federal  company  must  earn  a  six  per  cent, 
return  upon  this  increased  capitalization  of 
$37,530,000,  in  order  that  the  present  stock 
and  bond  holders  may  receive  full  value  for 
their  property.  This  earning  would  exhaust 
the  whole  operating  income  which  the  Federal 
corporation  would  receive  as  coming  from  the 
Xorf  oik  and  Western  lines.  As  a  consequence 
there  would  be  nothing  earned  by  the  N.  &  W. 
line  in  the  nature  of  a  surplus  that  could  be 
diverted  into  aiding  the  Seaboard  Air  Line 
road,  or  other  weaker  lines  absorbed  by  the 
regional  railroad. 

Applying  the  same  rule  for  determining  the 
value  of  the  Seaboard  Air  Line  Bailway,  we 
have  its  operating  income  for  the  year  1917 
amounting  to  $7,237,881,  capitalized  at  six  per 
cent,  would  fix  the  value  of  this  property  at 
$120,631,000.  This  would  be  the  amount  of  the 
regional  railroad  securities  issued  in  payment 
of  that  property.  But  its  present  stock  and 
bond  issues  in  the  hands  of  its  security  holders 
aggregate  $192,433,000,  which  is  $71,802,000 
more  than  they  would  receive  from  the  Fed- 
eral corporation.  Securities  amounting  to 


172 

$71,802,000  would  have  to  be  cancelled  and  for 
which  the  holders  would  receive  nothing.  It 
would  require  all  the  operating  income  of  this 
road,  $7,237,881,  to  pay  a  six  per  cent,  return 
upon  the  securities  issued  by  the  Federal  cor- 
poration. It  is  manifest  that  neither  line 
would  secure  any  benefit  from  this  arrange- 
ment, and  the  security  holders  of  both  con- 
cerns would  seriously  object  to  turning  their 
properties  over  to  the  regional  railroad  under 
such  conditions. 

But  this  method  of  arriving  at  the  value  of 
a  railway  cannot  be  provided  or  enforced  by 
Act  of  Congress.  Fixing  values  of  property, 
or  specifying  the  elements  constituting  value 
is  not  a  legislative  function,  but  belongs  ex- 
clusively to  the  judicial  department  of  govern- 
ment. Determining  values  is  not  within  the 
scope  of  legislative  power.  The  courts  must 
fix  values  and  lay  down  the  rules  whereby  all 
the  elements  constituting  value  must  be  con- 
sidered. Economists  have  evolved  many  the- 
ories for  railway  valuation,  such  as  original 
money  cost  of  construction,  present  cost  of  re- 
construction and  right  of  way,  and  the  market 
price  of  stock  and  bonds,  and  earning  power. 
How  much  weight  should  be  given  to  each  one 
of  these  factors  must  be  settled  by  the  courts. 


173 

To  arrive  at  values  by  estimating  the  true 
operating  income  is  probably  the  least  reliable 
method  that  has  yet  been  advanced.  At  best 
it  can  amount  to  not  much  more  than  a  guess. 
This  is  apparent  from  the  fact  that  many  fac- 
tors unforeseen  and  uncontrollable  unite  to 
influence  either  up  or  down  the  operating  in- 
come— weather  conditions,  the  fluctuations  of 
business  activity  management,  equipment  and 
facilities  and  rates — all  play  an  important 
part  in  determining  operating  income.  Using 
the  N.  &  W.  income  to  show  these  violent 
changes  in  the  last  ten  years,  they  cover  the 
following  range : 

1908  income $5,773,000 

1909  income 6,665,000 

1910  income 9,043,000 

1911  income 7,557,000 

1912  income 9,381,000 

1913  income 11,106,000 

1914  income 10,268,000 

1915  income 10,409,000 

1916  income 20,624,000 

1917  income 19,651,000 

It  would  not  do  to  average  these  for  the 

road  has  shown  an  actual  capacity  to  nearly 
quadruple  its  operating  income  in  ten  years. 
Have  the  companies  earnings  reached  their 


174 

maximum  or  is  there  a  reasonable  expectation 
that  they  will  continue  to  increase  in  the  fu- 
ture and  if  so  to  what  extent? 

A  change  in  rates  would  make  a  tremendous 
difference  in  operating  income.  The  N.  &  W. 
hauled  36,000,000  tons  of  coal,  and  an  increase 
of  fifteen  cents  a  ton  would  add  to  operating 
income  the  sum  of  $5,400,000 — which  being 
capitalized  would  augment  the  road's  capital- 
ization by  $90,000,000.  If  this  plan  should  be 
adopted  it  would  necessarily  inflict  upon  se- 
curity holders  the  grossest  injustice. 

OPERATION  OF  REGIONAL  RAILWAYS 

The  advocates  of  regional  railways  appear 
to  have  given  but  scant  attention  to  the  dif- 
ficulties that  will  arise  wherever  twenty  or 
twenty-five  thousand  miles  of  railway  are  to 
be  operated  as  a  single  unit  by  one  executive 
head.  Mr.  James  J.  Hill  said  repeatedly  that 
six  thousand  miles  of  track  was  as  much  as 
could  be  operated  efficiently  as  a  single  unit. 

A  little  reflection  must  convince  us  that  the 
public  interest  demands  that  competition  in 
service  should  be  maintained  by  the  railways. 
To  attract  business  to  a  particular  road  by 
reason  of  its  rendering  superior  service  is  con- 
clusive proof  of  a  wise  management.  Such  a 


175 

policy  pleases  the  patrons  and  brings  prosper- 
ity to  the  road.  It  does  more  for  it  spurs  the 
competing  road  into  an  effort  to  improve  its 
own  traffic  conditions.  But  when  all  previous- 
ly competing  roads  in  the  same  general  terri- 
tory are  surrendered  to  one  corporation  to 
own  and  to  operate,  there  can  be  no  longer  any 
real  competition  between  them.  A  single  own- 
ership will  destroy  all  competition  in  service. 
The  stimulus  for  the  expeditious  handling  of 
traffic  will  be  gone.  Loaded  cars  will  stand  on 
switches  and  side  tracks  for  weeks  with  no  at- 
tempt to  move  them.  The  operation  of  the 
roads  by  the  Government  is  emphasizing  this 
condition  daily. 

The  most  efficient  railways  are  those  whose 
executive  heads  keep  in  constant  personal 
touch  with  the  shippers  and  industrial  enter- 
prises along  their  lines.  The  shipping  inter- 
ests require  that  a  manager  with  authority  to 
act  should  be  so  located  that  he  can  be  reached 
in  a  short  time  for  personal  conferences.  The 
good  manager  will  have  a  personal  knowledge 
of  the  industrial  conditions  of  every  plant  on 
his  road  that  offers  any  considerable  quantity 
of  freight.  He  will  be  cognizant  of  the  pro- 
ductive possibilities  of  agriculture,  mining, 
manufacturing  and  all  other  industries  which 


176 

Ms  railroad  serves  and  lie  will  use  his  power 
to  develop  these  enterprises  to  the  highest 
point  of  production.  He  must  act  quickly 
upon  propositions  coming  from  his  shippers. 
In  view  of  the  extensive  area  covered  by 
twenty-five  thousand  miles  of  railway,  and  the 
diversified  industries  located  in  a  single  re- 
gion with  all  their  complex  ramifications,  no 
manager  can  have  the  requisite  information 
to  deal  with  these  conditions  intelligently.  It 
is  true  that  there  may  be  superintendents  and 
local  representatives  without  number,  but 
they  will  have  no  authority  to  act  except  on 
routine  matters  and  questions  of  very  minor 
importance.  They  will  have  to  send  every- 
thing of  consequence  to  those  higher  up  for 
their  action  and  approval.  This  is  red  tape 
and  takes  time,  and  in  the  meanwhile  the  ship- 
pers' business  is  suspended  or  held  up  await- 
ing the  action  of  the  manager. 

It  is  physically  impossible  for  the  operation 
of  twenty-five  thousand  miles  of  railways  ex- 
tending from  Washington  into  Florida  and 
New  Orleans  and  from  Norfolk  to  Columbus, 
Cincinnati  and  Louisville  to  be  as  efficient  as 
that  of  the  Norfolk  &  Western,  with  only  two 
thousand  miles  of  line,  where  the  management 


177 

is  personally  cognizant  of  every  detail  and 
factor  that  makes  for  good  service. 

A  regional  railway  would  be  so  huge  and 
cumbersome  that  it  could  not  be  operated  as 
skilfully  and  economically  as  the  individual 
lines  in  single  units. 


12 


GOVERNMENT  GUARANTIES 

Some  very  eminent  gentlemen  have  recom- 
mended that  the  government  place  its  guar- 
anty upon  bonds  and  stocks  issued  by  railroad 
companies.  The  argument  in  support  of  this 
position  is  that  the  government  should  give  its 
written  pledge  that  the  bonds  and  their  inter- 
est should  be  paid  as  they  mature,  and  that 
regular  minimum  dividends  should  be  paid  on 
the  stock.  And  if  for  any  reason  the  com- 
panies do  not  earn  enough  to  meet  these  de- 
mands, the  government  binds  itself  to  pay  the 
difference.  According  to  their  contention  this 
course  is  made  necessary,  in  order  to  give  these 
securities  such  a  certainty  of  income  that  in- 
vestors will  accept  and  pay  for  them.  Under 
their  plan  of  railway  reorganization  and  re- 
capitalization, the  carriers  will  fail  to  be  self- 
sustaining,  and  the  taxpayers  must  bear  the 
burden  of  all  such  failures. 

The  Spokane,  Portland  and  Seattle  Railway 
owned  and  operated  in  1917  a  line  of  railway 
between  these  cities  of  554  miles.  The  com- 
pany is  capitalized  at  $212,000  per  mile,  ag- 
gregating a  total  of  $117,600,000.  For  the 
year's  operation  it  had  a  deficit  of  $420,994.00. 

178 


179 

It  earned  nothing  on  its  $40,000,000  stock. 
Had  the  government's  guaranty  been  on  these 
securities,  it  would  have  cost  the  taxpayers 
of  the  country  about  $2,500,000  to  make  good 
the  deficit.  More  than  three-fourths  of  the 
traffic  of  this  road  was  the  products  of  timber 
and  agriculture  moved  to  the  Pacific  Coast. 
Under  the  government  guaranty  plan  the  citi- 
zens of  Maine  would  be  called  on  to  pay  a  part 
of  this  loss. 

The  wisdom  of  a  policy  of  government  guar- 
anties has  not  been  discussed  by  its  advocates. 
The  propriety  of  imposing  additional  colossal 
burdens  upon  the  taxpayers  of  the  country  in 
order  to  support  their  transportation  plan 
does  not  seem  to  have  occurred  to  them.  The 
government's  credit  has  been  so  impaired  by 
the  volume  of  its  outstanding  obligations  that 
they  have  depreciated  in  value  to  the  extent  of 
seven  or  eight  per  cent.  Government  bonds 
for  which  the  holders  paid  one  hundred  cents 
on  the  dollar,  are  now  selling  on  the  market 
for  ninety-two  to  ninety-three  cents  on  the  dol- 
lar. The  credit  of  the  government  will  con- 
tinue to  fall  in  proportion  as  its  obligations 
are  made  to  increase. 

We  have  come  to  that  place  in  the  history  of 
our  country  where  the  government  must  adopt 


180 

a  policy  of  socialism,  and  enter  into  a  purpose 
of  experimentation  with  socialistic  theories 
involving  as  it  does  not  only  a  revolution  in 
the  functions  of  government  itself,  but  a  com- 
plete reorganization  of  our  whole  industrial 
fabric;  or  the  government  must  continue  to 
leave  our  material  affairs  to  private  enter- 
prise, which  up  to  this  time  has  secured  for  us 
a  progress  so  great  that  it  almost  borders  on 
the  miraculous.  Socialism,  says  the  govern- 
ment, must  take  over,  own  and  operate  all  our 
industries,  through  bureaus  and  officials  ap- 
pointed for  the  purpose.  The  anti-socialist 
believes  that  the  initiative,  the  skill  and  abil- 
ity of  the  individual  should  not  be  shackled  by 
the  artificial  restraints  of  state  interference, 
which  means  the  wielding  of  despotic  power 
over  the  ablest  and  most  forceful  men  in  our 
citizenship.  Men  like  Gary,  Schwab,  Hill, 
Harriman,  Wanamaker,  Ford,  and  Morgan, 
and  hundreds  of  others  who  have  done  so  much 
for  the  development  of  the  country  and  the 
building  up  of  its  industries,  would  be  impos- 
sible in  a  socialist's  state.  Their  power  for 
good  would  be  suppressed,  and  their  places  as 
executives  would  be  taken  by  Soviet  councils, 
such  as  are  now  controlling  the  destiny  of 
Kussia. 


181 

The  aim  of  Socialism  is  revolution,  both  gov- 
ernmental and  industrial,  and  revolution 
spells  anarchy.  In  dealing  with  the  railroad 
situation,  the  Congress  will  have  to  be  guided 
by  one  of  two  opposing  philosophies.  The 
stream  of  socialistic  tendency  which  has  had 
such  an  impetus  by  recent  events,  will  be  great- 
ly augmented  by  legislative  action,  or  it  will 
be  checked  by  a  policy  of  governmental  regu- 
lation that  will  amply  protect  the  public  in- 
terest which  at  the  same  time  vouchsafe  to  pri- 
vate ownership  an  unhampered  power  of  in- 
dividual initiative  for  the  public  benefit.  Any 
governmental  purpose  to  guarantee  income  on 
railroad  securities  will  necessarily  advance 
the  cause  of  socialism. 

It  is  no  part  of  the  functions  of  government 
in  a  free  country  to  engage  in  industrial  pur- 
suits. Why  should  our  government  embark 
in  the  transportation  business,  when  it  is  cer- 
tain that  the  public  will  receive  better  serv- 
ice under  private  ownership  and  management 
of  the  railways?  The  scope  of  government 
should  be  limited  to  an  efficient  governmental 
regulation,  which  will  give  to  the  carriers  all 
the  credit  they  need  by  a  safe  system  of  recap- 
italization with  a  legislative  requirement  of  a 
minimum  return,  resulting  ultimately  in  lower 


182 

rate  levels.  Every  transportation  enterprise 
should  be  self -supporting,  otherwise  it  will  be- 
come  a  burden  on  the  taxpayers  and  an  eco- 
nomic waste. 

A  policy  of  governmental  guaranties  is  at- 
tempted to  be  justified  on  the  ground  that  it 
will  strengthen  railway  credit,  while  that  ma> 
be  true,  it  will  surely  have  a  depressing  ef- 
fect upon  the  credit  of  the  government.  To 
ask  that  the  government  lend  its  credit  to  the 
railways  is  a  confession  of  its  advocates  that 
their  general  plan  for  railway  reorganization 
is  wholly  inadequate  and  must  fail  before  it 
fairly  started.  They  object  to  the  Congress 
requiring  the  regulating  bodies  to  so  adjust 
rates  that  the  minimum  income  shall  not  be 
less  than  five  per  cent  on  a  capitalization  of 
actual  values.  Their  objection  is  stated  as 
follows : 

"We  live  under  a  democratic  form  of  gov- 
ernment and  the  will  of  the  people  rules.  That 
is  a  fact  which  no  one  would  change  even  if  it 
were  possible,  but  investors  are  not  blind  to 
the  lessons  of  history  and  to  the  signs  of  the 
times.  They  have  learned  that  in  the  long  run 
legislatures  and  commissions,  all  of  whom  di- 
rectly or  indirectly,  are  chosen  by  the  people 
and  are  accountable  to  the  people,  cannot  be 


183 

depended  upon  to  regulate  railways  and 
to  fix  their  rates  in  such  manner  as  to  make 
railway  stocks  a  safe  investment.  *  *  *  Even 
if  Congress  should  enact  a  law  providing  a 
just  and  workable  method  of  determining  the 
value  of  the  property  of  the  railway  com- 
panies, and  the  rate  of  return  thereon  that  is 
to  be  deemed  fair  and  also  a  workable  formula 
for  fixing  rates  that  will  produce  this  fair  re- 
turn, the  Act  of  Congress  itself  could  at  any 
time  be  altered,  amended  or  repealed." 

This  argument  is  based  on  the  assumption 
that  the  Congress  cannot  be  depended  upon  to 
leal  fairly  and  honorably  with  the  people  who 
have  been  induced  to  invest  in  railway  secur- 
ities under  a  solemn  enactment  of  the  Congress 
giving  them  its  pledge  of  honor  that  they 
should  receive  a  minimum  return  of  five  per 
cent,  on  their  actual  cash  investment.  This 
means  that  this  Congress  has,  or  some  future 
Congress  will  so  deteriorate  that  the  people 
will  be  warranted  in  withholding  all  confi- 
dence in  its  honor  and  integrity.  If  such  a 
condition  should  unfortunately  ever  come  to 
pass,  every  security  that  now  upholds  the  in- 
stitution of  private  property  will  be  utterly 
destroyed,  and  confiscation  will  have  undoubt- 
ed sway.  Our  law  making  power  has  and 


184 

must  continue  to  be  dominated  by  moral  con- 
siderations. When  it  loses  all  its  sense  of 
honor  it  would  feel  as  little  bound  to  provide 
for  its  legal  contracts  as  for  its  moral  obliga- 
tions. In  any  event,  the  sanctity  of  the  gov- 
ernment's contracts  is  dependent  upon  con- 
gressional action,  for  its  debts  can  only  be 
paid  by  an  appropriation  voted  by  the  Con- 
gress. It  is  just  as  easy  for  the  Congress  to 
refuse  the  appropriation  as  it  would  be  to  re- 
peal the  act  providing  for  a  minimum  return 
on  railway  securities.  The  only  power  that 
can  compel  Congress  to  provide  for  the  pay- 
ment of  the  government's  debts,  or  restrain  it 
from  repealing  any  act  is  the  combined  moral 
sense  of  the  President,  the  Senate  and  the 
House  of  Kepresentatives.  It  would  be  most 
unfortunate  if  the  people  ceased  to  have  faith 
in  the  honor  of  these  three  great  branches  of 
government  constituting  our  law  making 
power.  Yet  the  whole  argument  for  govern- 
ment guaranties  is  based  on  the  assumption 
that  the  people  cannot  trust  their  Congress. 

The  success  of  government  guaranties  in 
other  countries  has  been  recently  investigated 
and  reported  upon  by  Mr.  F.  H.  Fayant.  A 
press  excerpt  from  the  report  is  as  follows : 


185 

"FKENCH  FINANCING  OF  KOADS  A 
FAILURE 

"F.  H.  FAYANT  CITES  SITUATION  IN  WARN- 
ING AGAINST  U.  S.  GUARANTEE  TO  LINES 

"The  experience  of  France  with  the  pol- 
icy of  governmental  guarantee  of  income 
on  private  capital  invested  in  railroads 
have  been  very  unsatisfactory,  according 
to  Frank  H.  Fayant,  of  the  Association  of 
Railroad  Executives,  in  a  report  to  that 
body  of  a  study  of  French  railroads.  The 
adoption  of  such  a  policy  in  this  country 
will  inevitably  lead,  in  the  opinion  of  Mr. 
Fayant,  to  a  lowering  of  the  efficiency  of 
American  roads  and  eventually  to  Gov- 
ernment ownership. 

"The  uneven  working  of  the  French 
guarantee  plan  before  the  war  made  the 
administration  of  the  railroads  a  contin- 
uously discussed  political  problem,  with  a 
constantly  recurring  agitation  for  the  re- 
purchase of  the  companies  and  their  oper- 
ation by  the  State. 

"The  expectation  had  been  that,  after  a 
few  years  of  development,  during  which 
time  the  State  would  be  obliged  to  ad- 
vance the  companies  funds  with  which  to 


186 

pay  charges  on  capital  not  yet  yielding  a 
profit,  there  would  follow  a  period  of  ex- 
panding business  and  rising  earnings  that 
would  enable  the  companies,  first  to  repay 
their  advances  from  the  public  treasury, 
and  later  increase  their  dividends  to  the 
point  of  profit  sharing  with  the  State. 
"Profits  for  State  Expected 

"It  was  confidently  expected  that  at  the 
end  of  the  concession  the  six  great  lines, 
developed  to  the  point  of  perfection  under 
private  ownership  and  operation,  would 
automatically  become  the  property  of  the 
State,  free  of  all  capital  charges  and  with 
such  profit  making  possibilities  that  they 
would  provide  the  funds  to  meet  a  large 
part  of  the  general  expenses  of  the  State. 

"The  results,  Mr.  Fayant  goes  on  to  say, 
were  very  disappointing,  and  all  but  two 
of  the  roads  have  been  forced  to  appeal 
constantly  to  the  government.  There  has 
been  no  profit  sharing,  he  says,  and  the 
guarantee  has  only  served  to  entangle  the 
weaker  roads  in  politics  and  public 
finance. 

"It  has  been  a  handicap  to  progress  and 
has  stunted  private  initiative,  says  the  re- 
port. 


187 

"Mr.  Fayant,  while  admitting  that  the 
experience  of  one  country  is  seldom  an  un- 
failing guide  for  another,  because  of  dif- 
ferences in  economic  conditions,  racial 
characteristics  and  national  traditions 
and  ideals,  conclude  that  it  would  be  a 
grave  error  for  this  country  to  go  into 
financial  partnership  with  the  railroads. 
"Forsees  Partisan  Struggles 

"Instead  of  getting  the  railroads  out  of 
politics,  would  not  such  a  partnership  in- 
evitably drag  them  more  deeply  into  the 
meshes  of  partisan  struggles?  he  asks. 
In  a  word  would  not  direct  guarantee  of 
railroad  income  inevitably  lead  to  govern- 
ment ownership  and  operation? 

"If  we  are  to  retain  the  advantages  of 
private  initiative  and  save  our  transpor- 
tation system  and  all  our  machinery  of 
production  from  the  deadening  blight  of 
political  meddling  we  ought  to  consider 
well  the  dangers  involved  in  any  proposal 
for  a  financial  partnership  between  the 
railroads  and  the  government. 

"Should  we  not  attempt  to  correct  the 
recognized  faults  in  our  system  of  regu- 
lation and  build  on  the  sure  foundation  of 
the  past  rather  than  enter  on  an  era  of 


188 

political  experimentation  with  new  and 
untried  theories?  asks  Mr.  Fayant. 

"If  we  are  to  have  a  more  definite  guar- 
antee that  capital  and  brains  devoted  to 
the  production  of  transportation  shall  be 
fairly  rewarded,  let  us  find  a  formula  that 
will  not  admit  of  too  easy  translation  into 
government  ownership." 


KEGULATION  OF  EAILWAY 
EMPLOYEES 

Practically  all  railway  employees  belong  to 
organizations  or  unions  that  have  the  power 
to  quit  work  any  time.  They  can  stop  the  run- 
ning of  all  trains  and  paralyze  every  industry 
in  the  country,  and  bring  famine  and  starva- 
tion to  millions  of  people.  They  not  only  have 
the  actual  power  to  do  this,  but  under  a  law  of 
Congress  recently  passed  they  are  justified, 
and  indirectly  encouraged,  to  exercise  this 
power.  By  the  common  law,  and  by  statutory 
enactment,  any  agreement  or  combination  in 
restraint  of  interstate  trade  is  illegal  and 
made  criminal  on  the  ground  that  such  a  pur- 
pose, if  carried  out,  would  be  not  only  detri- 
mental but  destructive  of  the  public  welfare. 
But  labor  organizations  were  expressly  ex- 
empt from  the  operation  of  these  laws  by  a 
provision  of  Congress  contained  in  the  Clay- 
ton Act.  By  implication  at  least  they  are  told 
not  only  to  restrain  interstate  commerce,  but 
to  stop  it  entirely  whenever  it  suited  their  own4 
private  purpose.  They  may  lawfully  do  an  act 
which,  if  done  by  other  men,  would  send  them 

189 


190 

to  prison.    Such  class  legislation  as  this,  if 
persisted  in,  would  destroy  this  republic. 

The  Congress  has  absolute  power  over  in- 
terstate commerce  and  all  the  instrumental- 
ities that  are  used  in  connection  with  it.  It 
has  precisely  the  same  right  to  regulate  the 
employment  and  fix  the  wages  of  all  the  em- 
ployees of  a  railway  company  doing  an  inter- 
state business,  that  it  has  to  fix  the  rates  or 
income  of  the  carrier.  They  are  both  neces- 
sary instrumentalities  in  interstate  commerce. 
They  both  devote  their  time  and  their  efforts 
to  interstate  commerce.  They  are  both  charged 
with  the  performance  of  a  quasi  public  duty, 
and  submit  themselves  to  be  regulated  by  such 
governmental  agency  as  the  Congress  may  pro- 
vide, including  the  compensation  for  their 
services.  They  are  both  monopolies,  and 
should  be  regulated  in  the  public  interest,  as 
the  public  must  pay  all  that  each  receives  for 
what  they  do.  Any  regulating  tribunal  that 
Congress  may  establish  must  have  the  same 
jurisdiction  over  the  wages  of  the  employees 
as  over  the  rates  to  be  paid  by  the  public  to 
the  carrier,  for  the  wages  are  necessarily  in- 
cluded in  the  rates.  The  consuming  public 
pays  the  wages,  and  the  public  interest  de- 
mands that  it  be  protected  from  unjust  exac- 


191 

tions  imposed  by  either  carrier  or  employees. 
If  the  employees  demand  more  wages  than  the 
public  thinks  it  ought  to  pay,  let  the  contro- 
versy be  submitted  to  an  impartial  Federal 
tribunal  that  will  do  justice  to  both  sides. 
The  public  will  have  to  pay  whatever  the  Fed- 
eral authorities  may  fix,  while  the  employee 
may  accept  it  or  not.  He  will  be  at  liberty  to 
seek  other  employment.  Only  the  employees 
must  be  prohibited  from  entering  into  any 
agreement  among  themselves  to  tie  up  the 
whole  transportation  system  of  the  country. 
Each  individual  may  quit  work  when  he 
chooses,  but  not  en  masse,  nor  as  an  organiza- 
tion that  would  result  in  stopping  the  running 
of  trains. 

That  commerce  may  continue  to  flow  freely 
from  one  state  to  another  without  interrup- 
tion or  hindrance  is  so  vital  to  the  very  life  of 
the  people,  that  no  body  of  men,  however  wise 
or  benevolent  they  be,  should  be  permitted  to 
have  or  exercise  the  power  to  stop  or  check  it. 
The  railway  employees  today  hold  in  their 
hands  the  power  to  completely  destroy  all  in- 
terstate commerce,  and  stop  every  mill  and 
factory  in  the  United  States,  and  bring  fam- 
ine and  starvation  to  all  the  large  towns  and 
cities.  The  best  public  interest  requires  that 


192 

the  menace  of  such  an  arbitrary  power  lodged 
in  any  organization  or  combination,  should  be 
removed  at  once.  The  safety  of  the  public 
should  never  be  left  to  the  whim  or  caprice  of 
any  combination  organized  for  the  purpose  of 
promoting  its  own  interest.  The  seriousness 
of  this  condition  cannot  be  minimized  by  the 
expectation  that  the  railway  employees  would 
not  exercise  the  power  they  have  to  stop  com- 
merce and  bring  suffering  and  death  to  the 
people.  The  Clayton  Act  placed  this  power  in 
their  hands,  and  then  they  proceeded  to  exer- 
cise it  by  forcing  the  Congress  to  grant  them 
in  the  Adamson  Act  what  they  demanded.  The 
Congress  passed  the  Adamson  Act  to  avoid  the 
calamity  that  would  ensue  if  the  employees 
carried  out  their  threat  to  strike  in  a  body  and 
suspend  all  railway  traffic.  If  the  Congress 
can  be  coerced  against  its  will  by  a  compara- 
tively small  number  of  men  to  grant  their  per- 
emptory demands  without  any  opportunity  to 
investigate  or  determine  the  justice  of  the  de- 
mand, as  was  done  in  the  Adamson  Act,  we 
can  expect  that  the  same  force  will  again  be 
invoked. 

This  coercive  power  has  been  used  to  de- 
stroy the  independence  of  Congress,  under  a 
threat  to  destroy  the  public  if  the  Congress 


193 

did  not  yield  at  once.  If  the  Congress  is  to  re- 
main a  deliberative  body,  seeking  to  promote 
the  general  welfare,  it  must  remove  from  its 
consideration  every  private  interest,  whether 
it  be  a  labor  monopoly  or  a  capitalistic  mo- 
nopoly. Unless  the  Congress  can  realize  that 
the  general  welfare  against  any  private  or 
personal  interest  must  be  the  basis  of  legisla- 
tion, we  cannot  expect  a  continuance  of  free 
institutions. 

The  proposition  is  a  very  simple  one,  and  not 
difficult  to  state. 

If  the  purpose  of  two  per  cent,  of  the  peo- 
ple is  hostile  and  destructive  to  the  life  and 
industry  of  the  other  ninety-eight  per  cent., 
which  should  prevail?  Which  as  a  matter  of 
sane  public  policy  should  be  destroyed?  How 
can  the  legislative  branch  of  the  government 
justify  an  act  which  gives  to  two  per  cent,  of 
the  people  the  power  to  destroy  ninety-eight 
per  cent,  of  the  people  in  order  to  subserve  its 
own  private  and  personal  interest?  Congress 
has  the  power  to  give  to  the  railway  employees 
the  amplest  and  fullest  measure  of  wages  and 
working  conditions  consistent  with  the  public 
welfare.  An  impartial  Federal  tribunal  can 
be  created  that  would  do  justice  both  to  the 
employees  and  the  public  in  every  controversy 
13 


194 

that  can  arise  between  them.  The  public  has 
no  power  to  coerce  or  injure  the  employees, 
and  likewise  the  employees  should  be  stripped 
of  all  power  to  destroy  or  injure  the  public 
whom  they  serve.  What  hardship  or  injustice 
could  be  imposed  upon  railway  employees  by 
having  a  Federal  authority  fix  their  wages 
and  working  conditions,  whenever  controver- 
sies arise?  Every  other  public  servant  from 
the  President  down  to  the  scrub  woman  has 
his  compensation  fixed  by  Federal  authority 
under  Acts  of  Congress.  The  same  is  true  of 
every  stockholder  who  has  his  money  invested 
in  interstate  railways.  Why  should  the  Con- 
gress make  an  exception  of  railway  employees, 
and  give  to  them  a  power  of  destruction  over 
the  people,  to  be  used  if  they  are  not  permitted 
to  fix  their  own  compensation  and  prescribe 
their  own  working  conditions? 

Congress  should  enact  such  laws  as  will 
subordinate  every  private  interest  to  the  pub- 
lic good;  and  especially  should  every  organ- 
ization or  combination  of  men,  no  matter  for 
what  purpose  brought  together,  be  stripped  of 
the  power  to  inflict  upon  the  public  the  dis- 
aster of  famine  and  death.  If  we  cannot  pro- 
tect the  ninety-eight  per  cent,  of  the  people 
against  the  exactions  of  the  other  two  per 


195 

cent.,  it  is  conclusive  proof  that  we  have  failed 
in  our  effort  at  self  government. 

THE  EIGHT  TO  STEIKE 

The  courts,  the  public  and  legislatures,  all 
recognize  the  right  of  working  men  to  stop 
work  for  any  reason,  or  even  without  reason. 
The  liberty  of  the  individual  is  so  protected 
by  constitutional  provisions  that  he  cannot  be 
compelled  to  perform  services  for  another 
against  his  will.  If  such  were  the  case  it  would 
be  a  denial  of  freedom,  and  men  could  be 
forced  into  involuntary  servitude.  The  right 
to  strike  should  not  be  denied  to  labor  organ- 
izations, in  any  personal  or  private  business 
enterprise.  The  right  of  the  individual  to  quit 
work  at  any  time  must  be  recognized  whether 
his  employment  be  public  or  private.  A  strike 
is  where  all  the  employees  quit  work  after  they 
have  conferred  together,  or  through  their  rep- 
resentatives. It  is  always  the  result  of  a  pre- 
vious agreement  to  go  out.  The  purpose  of  a 
strike  is  to  close  down  the  plant  and  prevent 
its  running  until  the  demands  of  the  workmen 
have  been  satisfied.  A  strike  says  to  the  em- 
ployer, "You  cannot  operate  your  property  un- 
less you  agree  with  the  men  who  have  quit 
their  jobs.  You  must  meet  our  demands  or  go 


196 

out  of  business."  In  the  controversies  that 
arise  between  the  owner  of  a  private  business 
—one  that  is  run  solely  for  the  profit  of  the 
proprietor — and  his  employees,  the  public  as 
such  is  not  concerned,  unless  there  is  a  strike 
resulting  in  violence.  The  public  has  but  small 
interest  in  a  peaceful  strike  which  affects  only 
the  personal  interests  of  the  striking  em- 
ployees and  their  employer.  All  the  losses  in- 
cident to  a  strike  of  this  character  must  be 
borne  by  the  employer  and  employees,  and  not 
by  the  public. 

But  there  is  another  kind  of  labor  contro- 
versy in  which  the  public  is  the  main  party  in 
interest.  Wherever  a  strike  occurs  among  the 
employees  of  public  utilities  companies  that 
stops  their  operation,  the  public  at  once  be- 
comes a  helpless  victim.  The  reason  why  the 
public  continues  to  suffer  loss  and  outrages 
from  these  strikes,  is  that  the  public,  through 
its  legislative  assemblies,  have  taken  no  steps 
that  will  give  it  protection  against  the  warring 
factions.  A  street  railway  strike  will  suspend 
nearly  every  industrial  enterprise  in  the  city. 
Any  attempt  to  operate  the  cars  in  the  public's 
interest  during  a  strike  will  result  in  violence, 
bloodshed  and  anarchy.  Generally  speaking, 
a  street  railway  strike  marks  the  end  of  a 


197 

reign  of  law,  and  the  beginning  of  revolution, 
wherein  the  public  is  the  chief  sufferer.  It 
seems  incredible  that  the  legislatures  would 
permit  this  situation  to  continue.  It  is  true 
that  provision  for  conciliation  boards  have 
been  made  in  some  of  the  states.  These  boards 
have  no  authority  to  do  anything  toward  set- 
tling the  trouble,  except  to  suggest  a  compro- 
mise. Their  idea  is  to  fix  up  a  compromise  re- 
gardless of  the  justice  of  it — any  temporary 
makeshift  to  stop  the  strike  and  start  the  cars 
to  running  again. 

This  is  all  that  legislation  has  done  for  the 
protection  of  the  public  against  a  practice  and 
course  of  conduct,  which,  if  permitted  to  con- 
tinue, will  undermine  the  foundations  of  civil 
government.  The  failure  of  the  legislatures, 
and  the  Congress  to  meet  this  situation  frank- 
ly and  fairly,  and  give  to  the  public  that  meas- 
ure of  protection  to  which  it  is  so  justly  enti- 
tled, is  the  weakest  spot  in  our  whole  system 
of  governmental  machinery.  In  considering 
this  subject  the  legislator  has  not  seen  any 
difference  between  public  and  private  employ- 
ment. He  has  failed  to  realize  that  the  con- 
ductor and  motorman  on  a  trolley  car  are  serv- 
ing the  public  in  the  same  way  as  the  police- 
man, and  that  the  services  of  the  engineer  and 


198 

fireman  on  a  train  are  essential  to  the  public 
welfare  as  the  soldier  in  the  ranks.  They  are 
all  working  for  the  public,  and  are  being  paid 
by  the  public.  They  must  not  use  their  em- 
ployment so  as  to  impose  irreparable  loss  and 
injury  upon  the  public.  Kecognizing  this  con- 
dition as  an  ever  present  evil,  we  naturally 
ask  what  is  the  remedy?  What  can  be  done 
about  it? 

The  Congress  and  State  legislatures  have 
ample  authority  to  prohibit  all  agreements  in 
restraint  of  commerce.  The  Congress  has  al- 
ready enacted  such  a  statute,  but  through 
some  influence  detrimental  to  the  public  wel- 
fare, labor  organizations  have  been  specifically 
exempted  from  its  operation.  If  the  Congress 
would  make  trainmen  amenable  to  the  same 
laws  against  agreements  in  restraint  of  inter- 
state commerce,  that  apply  to  all  other  citi- 
zens, there  would  be  no  such  thing  as  a  strike 
that  would  interfere  with  the  running  of 
trains.  Every  strike  is  the  carrying  into  effect 
of  a  previous  agreement  entered  into  by  those 
who  go  on  strike.  The  necessary  consequence 
of  which  is  to  stop  the  running  of  trains.  This 
would  not  only  restrain  the  flow  of  commerce, 
but  would  stop  it  entirely.  If  all  the  train 
crews  should  go  on  strike  at  the  same  time,  in 


199 

pursuance  of  an  agreement  so  to  do,  it  follows 
necessarily  that  such  agreement  operates  to 
restrain  the  movement  of  commerce.  The 
strike  is  the  power  which  the  employees  now 
have  to  compel  the  railway  companies  to  grant 
their  demands.  This  power  to  strike  can  only 
be  exercised  in  pursuance  of  an  agreement.  If 
the  law  will  prohibit  such  agreements,  the 
power  to  strike  will  be  destroyed,  and  as  a  con- 
sequence strikes  will  be  prevented. 

If  the  strike  is  prohibited  or  done  away 
with,  how  can  the  railway  employees  secure 
for  themselves  just  wages  and  good  working 
conditions?  What  remedy  or  recourse  can 
they  have  substituted  for  the  strike  whereby 
they  can  obtain  just  wages  and  better  working 
conditions?  The  very  best  possible  wage  and 
working  conditions  consistent  with  the  public 
interest  must  be  given  the  employees  as  a  suit- 
able reward  for  their  skill,  ability  and  loyalty. 
Whatever  compensation  the  employees  receive 
must  be  paid  by  the  public,  which  is  the  other 
party  in  interest,  although  the  employee  is  not 
employed  by  the  public. 

The  Interstate  Commerce  Commission  will 
stand  between  the  employee  and  the  public  as 
an  impartial  tribunal  with  power  to  adjust  all 
labor  controversies.  This  Commission  will 


200 

take  the  money  from  the  public  with  one  hand 
and  give  it  to  the  employees  with  the  other.  It 
will  be  just  to  both.  Can  any  one  find  any  rea- 
sonable objection  to  this  plan  of  settling  labor 
controversies?  The  Commission  fixes  the  com- 
pensation of  the  railway  companies  for  the 
services  they  render  the  public,  and  for  pre- 
cisely the  same  reason  should  it  fix  the  wages. 
It  does  not  permit  the  carriers  to  exact  too 
much  from  the  public,  and  its  jurisdiction 
should  likewise  be  extended  to  the  employees 
compensations.  Who  is  the  best  judge  of  a 
fair  wage  scale  and  working  conditions?  An 
impartial  Federal  tribunal  or  the  employees 
themselves?  No  man  should  be  the  judge  of 
his  own  case,  for  it  is  contrary  to  the  juris- 
prudence of  all  civilized  peoples.  It  is  not  ask- 
ing too  much  of  the  employee  to  say  that  the 
Interstate  Commerce  Commission  must  have 
the  power  to  settle  any  dispute  he  may  have 
with  his  employer.  He  can  accept  this  settle- 
ment or  not,  as  he  chooses.  If  he  is  not  satis- 
fied, he  can  quit  any  time  he  pleases.  He  may 
stop  work  as  an  individual.  The  only  limita- 
tion placed  upon  him  is  that  out  of  considera- 
tion for  the  public  welfare,  he  must  not  go  on 
a  strike  in  pursuance  of  an  agreement  with  his 
fellow  workmen  to  stop  the  running  of  trains. 


201 

In  this  lie  will  simply  be  obeying  the  same  law 
that  applies  to  all  other  citizens. 

The  necessity  for  devising  a  sane  and  just 
method  of  adjusting  all  controversies  arising 
over  the  wages  and  working  conditions  of  rail- 
way employees  is  imperative.  No  system  of 
transportation  can  possibly  be  efficient  or  meet 
the  public  requirements  which  leaves  in  the 
hands  of  a  few  men  the  arbitrary  power  to 
stop  the  running  of  trains  whenever  they 
please. 

The  public  must  be  served  efficiently,  and 
continuously,  without  interruption  from  any 
source.  In  order  to  secure  such  a  service  the 
public  stands  ready  to  compensate  the  investor 
and  employee  alike,  not  only  justly  but  even 
generously.  That  full  and  ample  justice  may 
be  done  to  the  public,  the  investor  and  the  em- 
ployee, there  must  be  some  impartial  Federal 
tribunal  created  with  jurisdiction  and  power 
to  settle  every  possible  question  that  may 
arise  between  these  apparently  conflicting  in- 
terests. 


SUGGESTIONS  OF  THE  SUPREME 
COUET 

Time  and  again  the  Supreme  Court  has 
pointed  out  the  inherent  weakness  of  our 
transportation  sytem  in  that  the  States  can 
and  do  exercise  a  large  measure  of  authority 
over  interstate  commerce,  both  directly  and 
indirectly.  The  court  has  emphasized  the  con- 
flict of  authority  between  State  and  Federal 
regulation  in  two  conspicuous  cases:  The 
Minnesota  Kate  Cases,  230  U.  S.  352,  and  the 
Shreveport  Case,  234  U.  S.  342— holding  in 
the  first  that  a  State  has  the  power  to  so  reg- 
ulate intrastate  rates  as  to  affect  interstate 
commerce,  and  in  the  latter  case  that  the  State 
does  not  possess  this  power.  The  cases  are  at- 
tempted to  be  harmonized  on  the  ground  that 
the  decisions  were  governed  by  the  peculiar 
facts  of  each. 

The  court  in  every  case  that  has  come  before 
it,  has  reiterated  the  dominant  power  of  Con- 
gress over  interstate  commerce : 

"Wherever   the   interstate   and   intra- 
state transactions  of  carriers  are  so  re- 
lated that  the  government  of  one  involves 
the  control  of  the  other,  it  is  Congress  and 
202 


203 

not  the  State,  that  is  entitled  to  prescribe 
the  final  and  dominant  rule,  for  otherwise 
Congress  would  be  denied  the  exercise  of 
constitutional  authority  and  the  State, 
and  not  the  Nation,  would  be  supreme 
within  the  national  field"  *  *  * 

"Congress,  in  the  exercise  of  its  para- 
mount power,  may  prevent  the  common 
instrumentalities  of  interstate  and  intra- 
state  commercial  intercourse  from  being 
used  in  their  intrastate  operations,  to  the 
injury  of  interstate  commerce.  This  is 
not  to  say  that  Congress  possesses  the  au- 
thority to  regulate  the  internal  commerce 
of  a  State,  as  such,  but  that  it  does  pos- 
sess the  power  to  foster  and  protect  inter- 
state commerce,  and  to  take  all  measures 
necessary  or  appropriate  to  that  end ;  al- 
though intrastate  transactions  of  inter- 
state carriers  may  thereby  be  controlled. 

"It.  was  recognized  at  the  beginning 
that  the  Nation  could  not  prosper  if  inter- 
state and  foreign  trade  were  governed  by 
many  masters,  and,  where  the  interests  of 
the  freedom  of  interstate  commerce  are 
involved,  the  judgment  of  Congress  and 
the  agencies  it  lawfully  establishes  must 
control/' 


204 

There  can  be  no  question  about  the  power 
of  Congress  to  regulate  and  control  intrastate 
commerce  whenever  its  regulation  by  State 
authority  will  in  anywise  affect  either  directly 
or  indirectly  the  carriers  engaged  in  interstate 
commerce.  There  can  be  no  adequate  system 
of  transportation  established  unless  Congress 
acts  upon  the  matters  that  have  heretofore 
hindered  their  efforts  to  perform  their  duties 
as  common  carriers  engaged  in  interstate  com- 
merce. 


KETUKN  OF  EAILWAYS  TO  THEIK 
OWNEKS 

While  government  control  and  operation  of 
the  railways  has  resulted  in  poor  service  and 
greatly  increased  cost  of  conducting  the  trans- 
portation, it  has  again  demonstrated  the  in- 
capacity of  government  to  manage  and  direct 
any  business  efficiently.  The  public  has  been 
compelled  to  pay  not  only  increased  rates  and 
fares,  but  is  called  on  to  make  up  large  losses 
by  taxation,  to  meet  the  growing  deficits 
brought  about  by  the  railway  administration. 
This  experiment  is  a  complete  answer  to  all 
the  socialistic  clamor  for  the  nationalization 
of  all  industry,  and  more  especially  for  gov- 
ernment ownership  of  all  public  utilities.  The 
lesson  has  been  a  very  expensive  one;  yet  if 
heeded,  it  will  save  us  from  many  a  blunder 
and  disaster  in  the  future.  While  the  thing  is 
still  upon  us,  where  we  can  see  and  feel  the 
faulty  service,  compared  with  what  we  re- 
ceived when  the  railways  were  under  private 
management,  there  is  almost  a  universal  de- 
mand for  turning  the  railways  back  to  their 
owners.  True,  some  of  the  railway  employees 
appear  still  to  favor  government  ownership 

205 


206 

with  the  right  of  the  employees  to  operate  the 
roads,  which  position  can  not  be  said  to  be  a 
disinterested  one. 

It  is  practically  certain  that  the  Congress 
will  not  permit  government  operation  any 
longer  than  is  absolutely  necessary.  The  rail- 
way administrator  has  bought  a  great  quan- 
tity of  equipment  for  the  roads  which  their  of- 
ficials say  is  not  needed,  nor  can  it  be  used. 
The  railways  naturally  object  to  paying  for 
unnecessary  and  surplus  equipment.  In  ad- 
dition to  this  controversy,  many  other  serious 
questions  have  been  injected  into  the  railway 
situation.  Bates  and  fares  have  been  raised, 
wages  have  been  increased,  and  matters  of 
maintenance  and  depreciation  will  have  to  be 
adjusted.  It  will  be  impossible  to  settle  all 
these  difficulties  by  the  owners  and  represen- 
tatives of  the  government  within  any  reason- 
able length  of  time.  In  many  instances,  the 
parties  in  interest  will  not  be  able  to  agree  at 
all.  Some  impartial  tribunal  must  be  pro- 
vided before  whom  all  such  controversies  may 
be  taken  for  final  action  and  decision. 

The  National  Transportation  Court  is  the 
proper  body  to  settle  all  questions  between  the 
Government  and  the  owners  growing  out  of 
Government  operation.  The  day  of  the  return 


207 

of  the  properties  to  their  owners  can  oe  so 
fixed  by  a  tribunal  specially  fitted  for  the  pur- 
pose as  to  cause  the  least  possible  friction  and 
embarrassment  to  the  carriers.  This  can  be 
done  much  better  by  the  Transportation  Court 
than  by  the  Congress,  for  the  Congress  would 
necessarily  name  the  time  when  the  Govern- 
ment would  return  all  the  roads,  whether  the 
owners  would  be  ready  to  receive  them  or  not. 
Immediately  upon  their  return  the  owners 
will  be  compelled  to  make  large  expenditures 
of  new  capital.  Provision  for  this  capital 
should  be  made  in  advance  of  receiving  the 
roads  and  the  restoration  of  private  manage- 
ment. The  law  which  Congress  will  enact  will 
be  the  basis  of  railway  credit  which  alone  can 
enable  the  roads  to  do  the  requisite  financing. 
Whenever  the  conditions  are  most  favor- 
able for  each  road  it  should  be  turned  back, 
but  if  the  government  surrenders  them  all  on 
the  same  day,  it  will  result  in  certain  confu- 
sion that  should  be  avoided.  A  conference  be- 
tween the  representatives  of  the  railways  and 
the  Transportation  Court  wherein  agreements 
will  be  reached  as  to  the  time  when  each  road 
will  be  turned  back,  will  develop  the  most  pro- 
pitious time  when  they  should  be  surrendered. 
By  this  method  the  return  will  be  more  or  less 


208 

gradual,  as  all  the  carriers  could  not  be  ex- 
pected to  perfect  their  arrangements  at  the 
same  time. 

The  controversies  between  the  owners  and 
the  Government  will  be  numerous,  involving 
large  sums  of  money,  and  the  settlement  of  an 
infinite  variety  of  questions.  These  matters 
cannot,  generally  speaking,  be  adjusted  until 
after  the  properties  are  returned,  although  it 
is  expedient  that  they  should  be  finally  dis- 
posed of  at  the  earliest  practicable  time.  The 
National  Transportation  Court  will  be  the 
most  competent  tribunal  to  make  these  adjust- 
ments. 


INDEX. 

Page 

Act    to    regulate    commerce,    plan    to    amend,    by    extending 
powers  of  Interstate  Commerce  Commission  with  right 

of  appeal  to  National  Transportation  Court 3 

Adamson  Act: 

Exercise  of  power  given  employees  by  the  Clayton  Act  in 

the  Adamson  Act  192 

Passed  to  prevent  strikes  . 192 

Additional  regulating  bodies,  necessity  for    45 

Additions  and  betterments: 

Difficulties  which  stand  in  way  of,  should  be  removed  ...     73 
National  Transportation  Court  may  require  carriers  to  pay 

for,  out  of  proceeds  of  stock  sales 10-11 

No  reason  why  states  should  control 134 

Adequate   service,   public  more  interested   in,   than   in   small 

dividends  93-91 

Adjustment  of  Eates.    See  also  Kates. 

Interstate  Commerce  Commission  to  so  adjust  rates  as  to 
permit  movement  of  all  commodities,  provided  they  will 

yield  a  profit   21 

National  Transportation  Court  may  so  adjust  rates  as  to 

produce  an  emergency  fund    10 

Objections  to  Congress  requiring,  so  that  the  minimum  in- 
come shall  not  be  less  than  five  per  cent,  on  capitali- 
zation of  actual  values 182 

Eates  will  have  to  be  readjusted  to  yield  investors  in  se- 
curities a  fair  return 2—3 

Administrative  function : 

Federal  Eailway  Board  would  not  be  empowered  to  exer- 
cise    159 

National  Transportation  Court  must  exercise 159 

Power  of  National  Transportation  Court  to  exercise 4 

Administrative  orders,  National  Transportation  Court  to  oper- 
ate as  a  court  of  review  of  the  Commission 's 8 

Administrative  powers,  National  Transportation  Court  to  ex- 
ercise, in  appellate  proceedings 8 

Advance  in  rates.     See  Increased  rates. 

Advice,  National  Transportation  Court  may  require,  from  In- 
terstate Commerce  Commission  14 

209 
14 


210 

Page 
Agreements : 

Congress  and   State   legislatures  have  authority   to  pro- 
hibit, in  restraint  of  commerce 198 

Date  for  return  of  roads  should  be  fixed  by,  between  Na- 
tional Transportation  Court  and  each  road  individually  207 
Destructive  of  public  welfare  when  in  restraint  of  trade  .    189 
Employees  must  be  prohibited  from  entering  into,  to  tie 

up  transportation  systems   191 

In  restraint  of  trade,  by  common  law,  and  by  statutory 

enactment,  are  illegal 189 

Prohibition  of,  by  law  will  eliminate  strikes 199 

Strikes  are  the  carrying  into  effect  of  previous 198 

Analysis  of  securities  holders  plan   106 

Appeals : 

Dismissal  of,  when  order  of  state  commission  does  not 

effect  interstate  commerce 20 

From  National  Transportation  Court  to  be  to  the  United 

State  Supreme  Court 17-18 

From  orders  of  state  commissions  shall  lie  to  the  Inter- 
state Commerce  Commission    20 

Method  and  procedure  of,  to  be  prescribed  by  Interstate 

Commerce   Commission    19 

Process  of,  by  state  commissions  to  Interstate  Commerce 

Commission  would  eliminate  conflict   133 

Appellate  jurisdiction.    See  Jurisdiction. 

Appellate  proceedings,  administrative  and  judicial  powers  to 

be  exercised  by  National  Transportation  Court  in 8 

Baltimore  &  Ohio  Railroad,  comparison  of  earnings  made  by, 

with  those  of  the  Philadelphia  &  Beading 136 

Bankruptcies : 

Minister  of  Transportation  would  fail  to  end 150 

Return  of  roads  without  legislation  would  bring  ultimate     52 
Sure  to  follow  unless  roads  put  upon  a  sound  financial 

basis    i 101 

Bondholders.     See  Stockholders. 
Bonds : 

And  other  obligations 78 

Ascertainment  of  value  of,  by  National  Transportation 
Court  and  issuing  federal  corporation  stock  at  par  in 

lieu    thereof    9-10 

Decrease  in  market  value  of  government 179 

Federal  Railway  Corporation  to  issue,  for  all  railways  lo- 
cated within  its  particular  region 169 


211 

Bonds — continued.  Page 

Guaranty  upon,  issued  by  railroads  to  be  placed  by  the 

government    178 

Illustration    of    exchange    of,    for    federal    corporation 

stock    78,  79 

Importance  of  preserving  integrity  and  value  of  railway  .     80 
National  Transportation  Court  to  ascertain  value  of  ....     78 

Outstanding,  class  I  roads,  December  31,  1917 80 

Problem  to  be  solved  is  how  to  deal  with  present  holders 

of  77 

Purpose  of  ascertaining  actual  value  of 78 

Boston  &  Maine  Railroad,  illustration  of  principle  of  reorgan- 
ization as  applied  to 88 

Bulletins,  Bureau  of  Statistics  of  Interstate  Commerce  Com- 
mission to  issue,  showing  receipts  and  disbursements  of 

carriers  and  change  in  rates 21 

Bureau  of  Statistics: 

Enlargement  of,  to  include  statistical  work  of  the  Na- 
tional Transportation  Court 21 

Monthly  bulletins  to  be  issued  by,  showing  receipts  and 

disbursements  of  carriers  and  changes  in  rates 21 

Cabinet  officer: 

Matters  of  service  and  credit  too  vast  to  be  intrusted  to 

newly  created    149 

Minister  of  Transportation  to  be  member  of 148 

Properties  might  be  carried  into  politics  by  placing  roads 

under 149 

Capital : 

Carriers  have  been  embarrassed  by  state  action  in  their 

effort  to  secure  necessary 74-75 

Plan  of  securities  holders  will  not  give  railways  sufficient 

credit  to  secure  additional,  when  necessary 143 

Railroads  must  resort  to  stock  sales  to  supply  necessary  .     44 
Required  by  carriers  should  be  provided  by  purchase  of 
securities  by  investors 51 

Capitalization : 

Advantages  of  proposed  plan  of  reorganization  of 90 

Excessive,  will  always  have  an  evil  influence 105 

Federal  incorporation  only  feasible  method  of  reorgan- 
izing       109 

Plan  suggested  will  secure  elimination  of  excess 32 

Railways  should  be  capitalized  on  a  basis  of  actual  values  109 
Reorganization   of    86 


212 


Capitalization — continued,.                                                              Page 
Should  represent  actual  value  of  property  used  in  conduct- 
ing transportation 3 

Taxation  of  excess 121 

Car  furnishing,  connecting  carrier  may  be  required  to  furnish 
equitable  proportion  of  coal  cars,  to  carrier  on  whose 
line  coal  is  mined 24 

Car  rentals,  weak  lines  to  be  charged  smaller  sum  for 146 

Cars.    See  Coal  cars. 

Cases  cited: 

Cheney  Brothers  Co.  v.  Massachusetts  (1918),  246  U.  S. 

147 57 

International    &    Great    Northern    Ry.    Co.    v.    Anderson 

County  (1918),  246  U.  S.  424 62 

Kansas  City,  etc.  Ry.  Co.  v.  Stiles  (1916),  242  U.  S.  Ill     62 

Lake  Iron  Co.  v.  Wakefield  (1918),  247  U.  S.  350 57-58 

Minnesota  Rate  Case: 

33  Sup.  Ct.  Rep.,729   130 

230  U.  S.  352   202 

Railroad  Co.  v.  Maryland  (1875),  21  Wall.  456 63 

Shreveport  Case,  234  U.  S  342  202 

Simpson  v.  David  Shepard,  33  Sup.  Ct.  Rep.  729 . . .   130 

Southern  Ry.  Co.  v.  Greene,  218  U.  S.  400 57 

Central  authority: 

Necessity  for    35,  38 

Transportation  that  will  render  best  public  service  must 
have  but  a  single • 75 

Central  board  of  regulation: 

Actions  of  regional  board  to  be  reviewed  by 163 

To  approve  regulation  of  regional  board  before  taking  ef- 
fect     163 

Central  tribunal.     See  Central  authority. 

Certificates  of  incorporation: 

National  Transportation  Court  to  issue   11 

Powers  granted  to  carriers  by 11 

Charters : 
Federal : 

Congress  can  authorize  more  attractive,  than  states  .   116 
National  Transportation  Court  to  issue,  for  federal 

incorporation  of  railways  and  steamship  companies       9 
Loss  of,  under  regional  plan  of  operating  railways  ....    167 


213 

Charters — continued.  Page 

State: 

Carriers  operating  under,  may  be  enjoined  by  Na- 
tional  Transportation   Court  from  doing  business 

affecting  interstate  commerce  12 

Complications  arising  from   63-04 

Difficulties  of  securing  necessary  properties  for  construc- 
tion of  terminals  if  roads  continue  to  operate  under     71 
Federal    incorporation    will    eliminate    complications 

arising  from    64 

National  Transportation  Court  to  direct  surrender  of 

existing     11-12 

Operation  of  carriers  under,  will  leave  doubts  and 
uncertainties  as  to  extent  of  state  jurisdiction  over 

interstate  carriers    66 

Circumstances  and  conditions,  causes  attributable  to  present 

condition  of  railways   99 

Class  legislation: 

Evils  of   142 

Beprehensible  from  every  point  of  view 142 

Clayton  act,  power  of  railway  employees  under 192 

Coal    cars,   connecting   carriers   may   be   required   to   furnish 
equitable  proportion  of,  to  carrier  on  whose  line  coal 

is  mined 24 

Commissioners : 

Interstate  commerce: 

Removal    of,    by   impeachment   in   same    manner   as 

United  States  judges   19 

Representatives    of    railways   and,    to   comprise   Na- 
tional Railway  Association 143 

Plan  suggested  will  secure  skilled 32 

Selection  of,  for  regional  commissions,  how  made 132 

Commission,  See  also  Interstate  Commerce  Commission;   Re- 
gional commissions;    State  commissions 

Burdens  of  roads  increased  by  regulation  of 2 

Cannot  be   depended  upon  to  regulate  railways  and  fix 
rates  in  such  manner  as  to  make  railway  stocks  a  safe 

investment    183 

Compensation : 
Carriers : 

Interstate  Commerce  Commission  to  fix,  for  service 

to  government,  whenever  a  disagreement 25 

Owners  of  roads  entitled  to 169 


214 

Compensation — continued.  Page 

Employees: 

Creation  of  a  fund  for  payment  of,  for  injuries  ....     16 
Establishment  of  suggested  plans  will  insure,  for  in- 
juries      33 

Public  which  pays,  only  party  in  interest 199 

To  receive,  for  injuries 15 

Federal  authority  fixes,  of  public  servants,  with  exception 

of  railway  employees   194 

National  Transportation  Court  to  prescribe  all  rules  and 

regulations  for  administering  ,. .     16 

Competing  lines : 

Compelled  to  have  same  rates  and  fares 135, 145 

Have  same  rates  but  different  earnings 136 

Competition : 

Public  interest  demands  maintenance  of  competition  of 

service 174 

Regulation  of  competitive  service  essential 157 

Single  ownership  will  destroy  competition  of  service  ....   175 
State  and  federal  laws  have  forced  carriers  into  useless 

and  wasteful  43 

Traffic  conditions  improved  by  175 

Complaints,  establishment  of  suggested  plans  will  insure  ex- 
peditious and  less  expensive  determination  of 34 

Conciliation  boards,  provisions  for,  have  been  made  in  some 

states 197 

Conference  of  carriers  on  their  respective  schedules  of  rates 
to  be  filed  before  the  Interstate  Commerce  Commis- 
sion   23-24 

Confiscation,  constitution  prohibits  taking  of  property  with- 
out due  process  of  law , 164 

Conflict : 

Between  state  and  interstate  traffic 67 

Method   of   eliminating   between   state   and   federal  tri- 
bunals   , 39,  69 

Congress: 

Actions  of,  toward  carriers  have  been  more  restrictive 

than  liberal  43 

Any  legislation  enacted  by,  should  define  and  fix  limits 
of  state  action  and  its  police  powers  affecting  interstate 

commerce 70 

Argument   for  governmental   guaranties   of   securities  is 
based  on  assumption  that  people  cannot  trust 184 


215 

Congress — continued.  Page 

Cannot  be  depended  upon  to  deal  fairly  with  the  people 
who  invest  in  railway  securities 183 

Clutch  of  every  private  interest  must  be  removed  by,  to 
promote  the  general  welfare 193 

Complete  governmental  regulation  with  private  owner- 
ship and  operation  must  be  main  purpose  of,  to  meet 
public  requirements  3 

Complications  between  state  authority  and  interstate  car- 
riers will  continue  until  state  power  over  interstate 
carriers  is  removed  by  130 

Considerations  enumerated  for  judgment  of,  to  determine 
necessary  regulation  129 

Employment  may  be  regulated  and  wages  fixed  by 190 

Freedom  of  interstate  commerce  to  be  governed  by 203 

Laws  enacted  by,  providing  workable  method  of  deter- 
mining value  of  property,  could  at  any  time  be  al- 
tered or  repealed  183 

Laws  should  be  enacted  by,  as  will  subordinate  every 
private  interest  to  the  public  good  194 

Method  by  which  strikes  could  be  eliminated  by 198 

Method  of  arriving  at  the  value  of  a  railway  cannot  be 
enforced  by  . . . ., 172 

No  doubt  as  to  power  of,  to  regulate  state  traffic 69 

Per  cent,  of  tax  on  excess  earnings  could  be  provided  by 
act  of  147 

Power  of: 

Over  interstate  commerce  as  reiterated  by  courts  . . .  202 

Over  state  commerce  203 

To  control  intrastate  commerce  when  it  affects  inter- 
state commerce 204 

To  fix  wages  and  better  working  conditions 193 

Rules  whereby  railway  values  can  be  fixed  cannot  be  laid 
down  by 85 

Should  enact  legislation  to  place  transportation  system 
upon  a  safe  basis 125 

State  corporations  cannot  be  given  right  of  eminent  do- 
main over  state  property 74 

State  legislatures  and  Congress  have  authority  to  prohibit 
agreements  in  restraint  of  commerce 198 

Will  not  permit  government  operation  to  continue  longer 
than  necessary  206 

Consolidation  and  reorganizations   12 


216 

Consolidation  and  reorganizations — continued.  Page 

Authority  and  jurisdiction  over,  to  be  exercised  by  Na- 
tional Transportation  Court    12 

Complete  reorganization  of  whole  industrial  fabric  nec- 
essary       180 

Consolidation  of  the  Norfolk  &  Western  and  Seaboard  Air 
Line  under  regional  plan,  illustrated 171 

Establishment  of  suggested  plans  will  secure  cooperation 
of  railways  by  consolidation   33 

Federal  Railway  Board  to  have  supreme  power  over  con- 
solidations       158 

Eeceiverships  to  be  raised  by  National   Transportation 
Court  upon  basis  of  capitalization  to  permit  carriers 

to  earn  five  per  cent,  on  its  stock 12-13 

Construction : 

Errors  in,  have  tended  to  depress  credit  of  roads 2 

Plan  of  security  holders  provides  that  no  new  mileage  be 

built  unless  necessity  therefore  shown   133 

Contractual  obligations : 

Defined   118 

Rights   of   holders   of,   under  federal   incorporation   will 
be   maintained    118 

Will  be  strengthened  under  federal  incorporation 119 

Controversies : 

Between  owners  and  government  will  be  numerous  upon 
return  of  roads    208 

Impartial  tribunal  must  be  provided  for  settlement  of  .  .   206 

With  the  government  arising  out  of  federal  control  act  to 

be  determined  by  National  Transportation  Court 15 

Cooperation : 

Between  state  and  federal   commissions  can  be  accom- 
plished only  by  federal  incorporation 62 

Carriers  denied  right  of,  by  state  and  federal  laws 43 

Establishment  of  suggested  plans  will  secure 33 

Corporate  organization,  rules  for,  after  charter  is  issued,  to 

be  prescribed  by  National  Transportation  Court 11 

Court  of  review,  National  Transportation  Court  to  act  as,  of 

Commission 's  administrative  orders 8 

Courts : 

Authority    and   jurisdiction    of    review    should   be   taken 
from,  and  vested  in  the  National  Transportation  Court       8 

Illustration   of  procedure  before  state  commissions  and 
when  cases  taken  to   .  . .  160-162 


217 

Courts — continued.  Page 

Must  fix  values  and  lay  down  the  rules  whereby  all  the 

elements  constituting  value  must  be  considered 172 

Weight  given  economists  theories  for  railway  valuation 

must  be  settled  by 172 

Credit: 

Government : 

Depreciation   of    179 

Governmental  guaranties  will  have  a  depressing  ef- 
fect upon   182 

Impairment  of,  by  outstanding  obligations 51 

Will  continue  to  fall  in  proportion  as  its  obligations 

are  made  to  increase  179 

Railway : 

Cause  of  and  cure  for  loss  of 30 

Depression  of,  being  keenly  felt 80 

Government  should  be  limited  to  extent  which  will 

give  carriers  the  necessary  credit  they  need 181 

Governmental  guaranties  will  strengthen 182 

Laws  Congress  will  enact  will  be  basis  of 207 

Loss  of,  the  most  vital  evil  that  threatens  the  rail- 
ways      30 

Must  be  established  and  maintained  to  secure  proper 

service 2 

Obstacles  that  stand  in  way  of,  must  be  removed  . . .   125 
Plan  of  securities  holders  will  not  give  railways  suf- 
ficient, to  secure  additional  capital  when  necessary  143 

Plan  suggested  will  secure  a  stable  and  certain 32 

Railways  should  be  capitalized  on  a  basis  of  actual 

values  if,  to  be  maintained  109 

Deficit : 

Of  Railway  Administration  borne  by  the  public 205 

Resulting  from  government  operation  must  be  borne  by 

taxpayers   152 

Under  government  guaranty  plan,  of  Spokane,  Portland 

&  Seattle  Ry.  would  be  borne  by  citizens  of  Maine  .  178, 179 
Depreciation,  matters  of,  under  government  control  must  be 

readjusted    206 

Differentials,    Interstate    Commerce    Commission    shall    have 

power  to  fix,  between  rates  on  all  commodities 22 

Directors: 

Appointment   of,  by  National  Transportation  Court  for 

each    carrier    13 

Powers  and  duties  of  13 


218 


Page 
Discrimination,   procedure  necessary  when  shipper  victim   of 

unlawful   .. . 165 

District  Court,  actions  of  Regional  Board,  Central  Board  of 

Regulation  and  Federal  Railway  Board  taken  before  . .   164 

Dividends : 

Class  I  roads,  December  31,  1917 103 

National  Transportation  Court  may  apply  on,  when  condi- 
tions arise,  to  prevent  carriers  from  earning  five  per 

cent,  minimum    10 

Regular  dividends  should  be  paid  on  stock 178 

Due  process  of  law,  taking  of  property  without,  prohibited  by 

the  constitution    164 

Earnings.    See  also  Excess  earnings. 

Comparison  of,  Philadelphia  &  Reading  and  Baltimore  & 

Ohio  for  year  ending  December  31,  1917 136 

Economists : 

Disagreement  between,  as  to  elements  that  should  repre- 
sent true  value  of  railway  properties 84 

Theories  of,  for  railway  valuation  . . .  .- 172 

Efficiency  of  service,  establishment  of  suggested  plans  will  in- 
sure       34 

Emergency  fund: 

National  Transportation  Court  may  apply  on  dividends 
when  conditions  arise  to  prevent  carriers  from  earning 

five  per  cent,  minimum   10 

Rates  may  be  so  adjusted  by  National   Transportation 

Court  as  to  produce 10 

Eminent  domain,  Congress  cannot  vest  state  corporations  with 

right  to  exercise,  over  state  property 74 

Employees.    See  also  Public  servants. 

Comparison  of  benefits  derived  by,  from  excess  earnings 

of  Baltimore  &  Ohio  and  Philadelphia  &  Reading 138 

Compensation  of,  paid  by  public,  the  only  party  in  in- 
terest     199 

Demand  of,  is  justice  not  charity 142 

Desiring  to  participate  in  profits  can  purchase  stock  ....   143 
Division  of  excess  earnings  would  cause  discontent  among  140 

Effect  of  excess  earnings  upon 137 

Exercise  of  power  given  railway  employees  by  the  Clayton 

Act  in  the  Adamson  Act 192 

Government  ownership  favored  by  . . .. 205 


219 

Employees — continued.  Page 

Impartial  federal  tribunal  can  be  created  that  would  do 
justice   in    determining   controversies,    to    both   public 

and    193, 194 

Just  wages  should  be  paid  to  140 

Legislators  fail  to  realize  that  motonnen  and  conductors 
operating  trolleys  serve  the  public  in  same  manner  as 

policemen   197 

Must  be  prohibited  from  entering  into  any  agreements  to 

tie  up  transportation  systems  191 

Must  not  go  on  strike  in  pursuance  of  an  agreement  ....   200 

Not  entitled  to  share  in  excess  earnings 141 

Part  of  excess  earnings  to  be  shared  by 136, 137 

Power  of: 

To  destroy  interstate  commerce 191 

To   destroy  or  injure  the  public  whom  they  serve, 

should  be  stripped  from 194 

Under  Clayton  Act   192 

Practically  all  railway  employees  belong  to  organizations 
that  have  power  to  cause  cease  of  work  at  any  time  . . .   189 

Public  no  power  to  coerce  or  injure 194 

Regulation  of  railway 189 

Wages  could  not  be  so  adjusted  so  as  to  provide  their  re- 
ceiving third  of  excess  earnings 138 

Will  resent  idea  that  they  are  dependents  upon  a  gov- 
ernmental benevolence 142 

Equipment : 

Bought  by  Railroad  Administration  not  necessary  ......   206 

Establishment  of  suggested  plans  will  secure  cooperation 

by  joint  use  of  33 

Part  of  excess  earnings  to  be  used  in  purchase  of 136, 143 

Evidence : 

Establishment    of    suggested    plan    will    secure    findings 

being  made  upon  original  record  without  additional  . .     32 
National  Transportation  Court  to  have  power  to  require 

production  of    17 

Evils : 

Existing,  must  be  removed   27 

List  of  those  which  should  be  eradicated 31 

Examiners,  no  necessity  for,  under  proposed  plan 41 

Excess  earnings    135 

Comparison  of  benefits  derived  by  employees  of  the  Bal- 
timore &  Ohio  and  the  Philadelphia  &  Reading  from  . .   138 


220 

Excess  earnings — continued.  Page 

Distribution  of: 

Best  method  for 167 

Establishment  of  suggested  plans  will  insure  equi- 
table         33 

Receiving  serious  consideration   of   Senate   Commit- 
tee   , 144, 145 

So  as  to  favor  weak  lines 24, 167 

Under  securities  holders  plan   135 

Division  of,  would  cause  discontent  among  employees  . . .    140 

Effect  of,  upon  employees  137 

Employees  not  entitled  to  share  in 141 

Equipment  to  be  provided  from  part  of 136, 143 

Financial   assistance  for  railways   generally  to   be  pro- 
vided  from    136 

Graduated  excess  profits  tax-  on 146 

Part  of,  to  be  shared  by  employees 136, 137 

Per  cent,  of  tax  on,  could  be  provided  by  act  of  Congress  147 

Plan  proposed  for  diminishing  145 

Pooling  arrangements  to  diminish   146 

Promotion  of  pooling  by  taxation  of   , 147 

Reduction  in  noncompetitive  rates  to  reduce   146 

Senate  Committee  greatly  concerned  over 135 

Strong  roads  should  favor  weak  lines  and  thereby  reduce  146 
Taxation  on,  would  give  government  additional  revenue  .  .   147 

To  be  divided  into  three  equal  parts  136 

To  be  so  adjusted  as  to  favor  weak  lines ,. . .   144 

Exchange  of  stock  81 

Executive  committee,  Regional  Commissioners  to  be  selected 

by 132 

Executives.     See  Railway  executives. 

Existing  evils  must  be  removed   27 

Existing  state  authority  over  interstate  railways  condemned 

by  the  Supreme  Court 128 

Expedited  service,  stimulus  for,  will  disappear  if  roads  operate 

as  a  unit   175 

Facilities: 

Both  interstate  and  local  business  provided  with  same  . . .   128 
National  Transportation  Court  to  require  carriers  to  pro- 
vide necessary,  for  expeditious  handling  of  traffic  under 

normal  conditions    , 14 

Fares,  competing  lines  compelled  to  have  the  same 135, 145 

Fayant,   F.   H.,   situation   of   financing   of  roadsi  by  France, 

cited  by  185 


221 

Page 
Federal  authorities: 

Carriers   will    not   be   compelled   to   enter   into   regional 

scheme  by   167 

Have  no  control  over  stock  or  bond  issues 75 

National  interests  should  be  under  sole  jurisdiction  of  . .   134 
Federal  charters.    See  Charters. 
Federal  commissions,  cooperation  between  state  and,  can  only 

be  accomplished  by  federal  incorporation   62 

Federal  control.     See  Government  control. 
Federal  control  act,  controversies  with  the  government  arising 
out  of,  to  be  determined  by  National  Transportation 

Court  15 

Federal  corporation.     See  also  Federal  incorporation. 

Division  of  country  into  regions  under  supervision  of  . .   169 

Jurisdiction  of,  over  regional  railways  167 

One  class  of  securities  to  be  issued  by 77 

Proposed  powers  of  76 

Eeplacement  of  stock  by  issuance  of  new  stock  by 87 

Eights  of  owners  of  stock  when  surrendered  to 123 

Stocks  and  bonds  to  be  issued  by,  for  all  railways  located 

in  the  particular  region  under  supervision  of 169 

Stock  of,  to  be  issued  at  par  81 

Transferring  existing  railways  to 76 

Under  regional  plan,  to  have  jurisdiction  over  20,000  or 

25,000  miles  of  railway   167 

Federal  corporation  stock.     See  Stock. 

Federal  courts,  full  extent  of  police  power  has  never  been 

precisely  defined  by    65 

Federal  government,  tax  on  excess  earnings  to  be  received  by  .   147 
Federal  incorporation: 

Additional  rights  and  powers  will  be  obtained  under 117 

Advantages  of    55 

Advantages  of,  to  bondholders  79-80 

Complications  arising  from  state  charters  would  be  elim- 
inated by  64 

Contractual  obligations  will  be  strengthened  under 119 

Defined   114 

Efficient   and  equitable   transportation   can    only  be   se- 
cured by 29-30 

Establishment  of  suggested  plans  will  secure 33 

Existing   carriers  to   transfer  property  to,  under  forms 

prescribed  by  National  Transportation  Court   12 

Management  of  railways  to  remain  the  same  under  ....   120 


222 


Federal  incorporation — continued.  Page 

Method  of,  should  be  provided  by  Congress 55 

National  Transportation  Court  to  issue  charters  for  ....       9 
Necessary  properties  for  construction  of  adequate  termi- 
nals can  only  be  secured  by 74 

Necessity  for    110 

Objections  to 113 

Only  feasible  method  of  reorganizing  capitalization  ....   109 

Opposed  by  National  Securities  Holders  Asso 109 

Powers  necessary  for  better  and  efficient  service  will  be 

given  roads  under   117 

Power  of  state  commission  to  hamper  and  embarrass  in- 
terstate commerce  would  be  ended  by 61 

Profits  would  be  greater  under,  than  under  state  charters  120 
Proposed  plan  of  operation  of  regional  railways  by  ....    166 
Reasons  for  National  Securities  Holders  Asso.  opposing  .    110 
Bights  of  holders  of  contractual  obligations  will  be  pre- 
served under   118 

Security  holders  objection  to    123 

State  and  federal  commissions  can  be  made  to  cooper- 
ate by    61-62 

State  courts  will  be  changed  into  national  tribunals  by  . .     61 

Stockholder's  rights  not  to  be  disturbed  under   119 

Surrender  of  rights  under  116 

Tax  inequalities  and  excesses  would  be  eliminated  by  ...     60 
Welfare  of  people  of  each  state  would  be  promoted  by  . .   127 
Federal  laws: 

Carriers  must  be  unhampered  by  restrictive 28 

Expensive  and  inadequate  service  caused  by 43 

Investment   in    securities   under   present,    attended    with 

great   risk    52 

Investors  neither  protected  or  encouraged  by  federal  stat- 
utes   98-99 

List  of,  that  restrain  and  limit  action  of  carriers  to  the 

public   detriment    28 

Right  of  carriers  to  cooperate  denied  by 43 

Statutes  that  handicap  carriers  should  be  repealed 29 

Useless  and  wasteful  competition  caused  by 43 

Federal  legislation.     See  Legislation. 

Federal  organizations,  cooperation  of  state  commissions  with  125 

Federal  Railway  Board: 

Actions  of  Regional  Board  and  Central  Board  of  Regula- 
tion subject  to  review  by 163 


223 


Federal  Bail  way  Board  —  continued. 

Federal   railway    companies   under    regional   plan   to   be 

under  supreme  power  of  ........................  155,  158 

Should  be  vested  with  necessary  judicial  power  to  insure 

a  competent  and  speedy  court  review   ..............   159 

Supreme  power  over  securities,  recapitalization,  rate  mak- 

ing, consolidations,  pooling  and  labor  controversies  to 

be  vested  in    .....................................   158 

To  organize  ten  to  fifteen  federal  railway  companies  .  ...   155 

Would  not  be  empowered  to  exercise  judicial  as  well  as 

administrative   function    ...........................   159 

Federal  railway  companies,  to  have  power  to  acquire  all  or 

any  existing  lines  of  railway   ...............  .  ......   155 

Federal  regulation.     See  Regulation. 

Federal  statutes.     See  Federal  laws. 

Federal  tribunals.     See  Tribunals. 

Financial  partnership,  partisan   struggles  forseen  if  govern- 

ment enters  into,  with  railroads   ...................   187 

Financing  of  carriers: 

Carriers  will  be  compelled  to  do  a  tremendous  amount  of 

financing     ........................................      75 

Effect  of  power  of  states  over  .......................   125 

Failure  of,  in  France   ...............................   185 

Has  not  always  been  honest  or  wise  ..................       2 

History  of   .........................................     49 

Impossible  for  carriers  to  do  new  financing  while  stock 

sells  so  far  below  par  .............................   104 

Jurisdiction   of   states   over,  in   connection   with   federal 

power    ...........................................   124 

Method  proposed  to  solve  problem  of  ..................     53 

New  York,  New  Haven  &  Hartford,  example  of  consider- 

able financing   ....................................   124 

Part  of  excess  earnings  to  provide  financial  assistance  to 

railways  generally   ................................   136 

Railway  finance  must   be  reorganized  and  credit   main- 

tained to  secure  proper  service  .....................       2 

Suggestions    of    independent    associations    and    corpora- 

tions  for    ........................................   144 

Unwise  to  impose  upon  government  the  obligation  of  ...     51 

Fixing   stock  values    ....................................  82 

Foreign  trade,  cannot  prosper  if  governed  by  many  masters  .  .  203 

France,  financing  of  roads  by,  a  failure  ...................  185 

Franchises,  obligations  assumed  by  roads  in  return  for  .....  124 


224 


Free  institutions,  basis  of  Congressional  legislation  necessary 

for  continuance  of    193 

Freedom  from  political  influence 150 

Freedom  of  action,  National  Transportation  Court  and  Inter- 
state  Commerce    Commission   should   be    clothed   with 

same,  as  belongs  to  the  federal  judiciary 153 

French  financing  of  roads  a  failure  185 

Furnishing  cars.     See  Car  furnishing. 

General  jurisdiction.     See  Jurisdiction. 
Government  control: 

Congress  will  not  permit,  longer  than  necessary 206 

Date  for  termination  of,  to  be  fixed  by  National  Transpor- 
tation Court 15 

Deficit  due  to,  borne  by  the  public 205 

Demonstrated  incapacity  of  government  to  manage  busi- 
ness  efficiently    205 

Effect  of: 

On  stockholders   122 

Outlined    175 

Political  influence  upon 152 

Has  resulted  in  poor  service  and  deficits 152 

Increased  rates  under,  borne  by  the  public 205 

Matters  of  maintenance  and  depreciation  under,  must  be 

adjusted   206 

Not  as  economical  as  private  control 152 

Public  to  replace  losses  due  to,  by  taxation   205 

Eesulted  in  poor  service   205 

Socialistic  clamor  for  government  ownership  answered  by  205 
Government  operation.     See  Government  control. 
Government  ownership: 

Favored  by  railway  employees  205 

Regional  plan  draws  roads  closer  to  principles  of 156 

Regional  railways  plan  would  result  in  five,  instead  of 

one 157 

Socialistic  benevolence,  employees  will  resent  idea  that 

they  are  dependents  upon   142 

Governmental  function,  industrial  pursuits  in  a  free  country 

not   a    181 

Governmental  guaranties.    See  Guaranties1. 
Governmental  regulation.     See  Government  Control;    Regula- 
tion. 


225 

Page 
Grouping : 

Koads  under  one  ownership  and  management  in  a  given 

region    167 

Strong  roads  to  support  weak  lines  in  a  given  region  . . .    167 
Guaranty : 

Governmental 178 

Any  governmental  purpose  to  guarantee  income  on 

railroad  securities  will  advance  cause  of  socialism  181 
Argument  for,  of  securities  is  based  on  assumption 

that  people  cannot  trust  their  Congress 184 

Burden  of  failure  of  proper  earnings  if  stocks  and 
bonds  are  guaranteed  by  the  government  will  fall 

upon  the  taxpayers   178 

Success  of,  in  other  countries  184 

To   be  placed  upon   stocks  and   bonds   of   railroad 

companies 178 

Will  strengthen  railway  credit  but  will  have  a  de- 
pressing effect  upon  the  credit  of  the  government  .    182 

Wisdom  of  policy  of  179 

Harmony,  method  whereby  harmony  can  be  brought  about  ...     39 
Impartial  tribunal.    See  Tribunal. 

Impeachment,  removals  from  National  Transportation  Court 
to  be  made  by,  in  same  manner  as  applying  to  United 
States  judges 7, 153 

Income : 

Consideration  to  be  given  to,  in  fixing  value  of  roads  . . .   169 
Governmental  purpose  to  guarantee,  on  railroad  securities 

will  advance  cause  of  socialism 181 

Necessary  instrumentality  in  interstate  commerce   190 

Net,  class  I  roads,  December  31,  1917 103 

Objections  to  Congress  requiring  adjustment  of  rates  so 
that  the  minimum,  shall  not  be  less  than  five  per  cent. 

on  capitalization  of  actual  values  182 

Increased  rates,  borne  by  public  under  government  operation  205 
Industrial  enterprises,  railway  executives  of  efficient  railways 

keep  in  constant  personal  touch  with   175 

Industrial  pursuits,  not  a  part  of  the  functions  of  the  gov- 
ernment in  a  free  country 181 

Information  and  advice,  National  Transportation  Court  may 

require,  from  Interstate  Commerce  Commission 14 

Interstate  commerce: 

Cannot  prosper  if  governed  by  many  hands 203 

15 


226 

Interstate  commerce — continued.  Page 

Considerations  enumerated  for  judgment  of  Congress  to 

determine  necessary  regulation  of 129 

Dismissal  of  appeals  to  Interstate  Commerce  Commission, 

when  order  of  state  commission  does  not  affect 20 

Freedom  of,  to  be  governed  by  Congress 203 

Interblending  of  operations  in  conduct  of,  and  local  busi- 
ness     , 128 

Power  of  Congress  over: 

As  reiterated  by  the  courts 202 

When  intrastate  commerce  affects 204 

Power  of  railway  employees  to  destroy  191 

Bates  and  income  are  necessary  instrumentalities  of 190 

State  authorities   constantly   obstructing,  in   exercise    of 

police  powers    65 

Supreme    Court    flooded    with    controversies    over    police 

powers  of  states  to  regulate  65 

Interstate  Commerce  Commission: 

Advantages   of   cooperation   between    state    commissions 

and    112-113 

Appeals  from  orders  of  state  commission  shall  lie  to  ...     20 

Appellate  jurisdiction  of  19 

Carriers'  compensation  for  service  to  the  government  to 

be  fixed  by,  when  disagreement 25 

Carriers  to  be  assisted  by,  in  determining  the  reasonable- 
ness of  rates  to  be  filed  before 24 

Controversies  over  wages  shall  be  submitted  to,  for  in- 
vestigation         22 

Cooperation  between  state  commissions  and   111-112 

Could  act  as  supreme  governing  head  over  regional  rail- 
ways       158 

Differentials  between  rates  on  commodities  shall  be  fixed 

by 22 

Dismissal  of  appeals  to,  when  order  of  state  commission 

does  not  affect  interstate  commerce  20 

Establishment  of  suggested  plan  will  secure  settlement  of 

labor  controversies  by    33 

Extension  of  powers  of,  by  proposed  plan 153 

Fullest  measure  of  justice  and  service  will  be  obtained  by 

giving  full  regulatory  power  to   153 

General  principles  to  be  followed  by 21 

Jurisdiction  over  wages  should  be  extended  to 200 

Method  and  procedure  of  appeal  to  be  prescribed  by  ...     19 


227 

Interstate  Commerce  Commission — continued.  Page 

Minimum  rates  shall  not  be  fixed  by,  below  a  level  that 

will  not  yield  five  per  cent,  for  dividend  purposes  . 22 

Minister  of  Transportation  would  resemble 149 

National  Transportation  Court  may  require  information 

or  advice  from   14 

No  conclusion  reached  by,  as  to  elements  that  should  enter 

into  value  of  railroad  properties    85 

Plan  giving  primary  jurisdiction  over  interstate  and  in- 
trastate  commerce  to  state  commissions  with  right  of 

appeal  to   4 

Plan  to  amend  act  creating,  extending  powers  of,  with 

right  of  appeal  to  National  Transportation  Court  ....       3 
Proceedings  instituted  before,  may  be  referred  to  state 

commissions  for  investigation  and  report 20 

Process  of  appeal  by  state  commissions  to,  would  elim- 
inate conflict  133 

Kates  to  be  so  adjusted  by,  as  to  permit  movement  of  all 

commodities,  provided  they  will  yield  a  profit 21 

Regional  districts  to  help 131 

Removal  of  appointees  to,  by  impeachment 153 

Should  be  clothed  with  same  independence  and  freedom  of 

action  as  belongs  to  the  federal  judiciary 153 

State  commissions  to  aid 126 

State  commissions  will  be  auxiliary  to  4 

Supreme  regulatory  power  over  railways  in  conjunction 
with  the  Minister  of  Transportation  to  be  vested  in  ...  148 

To  be  reorganized  19 

Wages  should  be  fixed  by  200 

Will  stand  between  employee  and  public  as  an  impartial 

tribunal  with  power  to  adjust  all  labor  controversies  . .   199 
Would   be   overburdened    by    establishment    of   regional 

commissions   132 

Interstate  Commerce  Commissioners.     See  Commissioners. 
Interstate  Commerce  Committee: 

Disposition  of  excess  earnings  receiving  serious  considera- 
tion of  144, 145 

Greatly  concerned  over  divergent  earnings 135 

Intrastate  commerce.     See  State  commerce. 
Investments : 

Factors  that  influence    53, 95 

Legislatures  and  commissions  cannot  be  depended  upon  to 
regulate  railways  and  fix  rates  in  such  manner  as  to 
make  railway  stocks  a  safe 183 


228 

Investments — continued.  Page 

Railway,  attended  with  great  risk  50 

Six  per  cent,  a  reasonable  return  on  121 

Investors : 

Capital  required  by  carriers  should  be  provided  by  pur- 
chase of  securities  by  51 

Factors  necessary,  to  obtain  investors  in  securities   ....     96 
Features  of  proposed  plan  will  meet  every  possible  re- 
quirement of   97 

In  railway  securities  95 

Motive  of  expected  profits  actuated,  in  railway  securities    50 
Plan  must  be  devised  whereby,  will  feel  justified  in  pur- 
chasing new  issues  of  railway  securities 52 

Judicial  function: 

Federal  Eailway  Board  would  not  be  empowered  to  exer- 
cise       159 

Fixing  of  railway  values  belongs  exclusively  to  the  ju- 
diciary         85 

National  Transportation  Court: 

Must  be  exercised  by 159 

Power  of,  to  exercise 4 

To  exercise,  in  appellate  proceedings 8 

Would  exercise  same,  as  federal  courts  in  consider- 
ing appeals   36 

Jurisdiction : 
Appellate : 

Interstate  Commerce  Commission  to  exercise 19 

Matters  over  which  National  Transportation  Court 

would  have    8,  36,  39 

Federal  corporation  over  regional  railways 167 

National  interests  should  be  under  sole  jurisdiction  of 

federal  authority   134 

National  Transportation  Court: 

General 3, 15 

Original    47 

No  transportation  system  complete  unless  legal,  of  court 

reviews  is  given  one  single  court  159 

Operation  of  carriers  under  state  charters  subject  to  po- 
lice powers  will  leave  doubts  and  uncertainties  as  to 
extent  of  state  jurisdiction  over  interstate  carriers  ....     66 
Over  employees  compensation  should  be  extended  to  the 
Interstate  Commerce  Commission  200 


229 

Jurisdiction — continued.  Page 

Plan  of  giving  primary,  over  state  and  interstate  rates  to 
state  commissions  with  right  of  appeal  to  the  Interstate 

Commerce   Commission    4 

States  have,  over  purely  intrastate  traffic  67 

Under   regional   plan  federal   corporation   to   have,   over 

20,000  or  25,000  miles  of  railway   167 

Labor  controversies: 

Establishment  of  suggested  plan  will  secure  settlement  of     33 

Federal  railway  board  to  have  power  over 158 

Interstate  Commerce  Commission  will  stand  .between  em- 
ployee and  public  as  impartial  tribunal  to  adjust 199 

Necessity  for  method  of  adjusting,  is  imperative 201 

Labor  organizations: 

Exempt  from  provisions  of  Clayton  Act 189 

Bight  to  strike  should  not  be  denied 195 

Legislation.    See  also  Class  legislation. 

Any  enacted  by  Congress  should  define  and  fix  limits  of 
state  action  and  their  police  powers  affecting  interstate 

commerce    70 

Basis  of  Congressional,  necessary  for  continuance  of  our 

free  institutions   193 

Burdens  of  railways  increased  by  national  and  state  ....       2 
Congress  should  enact,  necessary  to  place  transportation 

systems  upon  a  safe  basis 125 

Necessity  for,  against  strikes   197 

Public  entitled  to,  against  strikes 197 

Railroad  question  must  be  answered  by  Congress  with  ap- 
propriate         28 

Removal  of  obstructions  against   roads  placed  by  state 

and  federal,  demanded  by  the  public 94 

Roads  would  be  unable  to  sell  securities  if  returned  by 

the  President  to  private  control  without  appropriate  . .     52 
Legislative  function,  fixing  values  of  property,  or  specifying 

the  elements  constituting  value  not  a 85, 172 

Legislatures : 

Cannot  be   depended  upon  to  regulate  railways  and  fix 
rates  in  such  manner  as  will  make  railway  stocks  a  safe 

investment    183 

State,  have  authority  to   prohibit  all  agreements  in  re- 
straint of  commerce    198 

Level  of  rates.    See  Rates. 

Litigation,  comparison  of  present  and  proposed  method  o£  . .  36-37 


230 

Page 

Local  interest,  zeal  of  state  authorities  to  promote,  in  exercis- 
ing police  power  obstructs  free  flow  of  interstate  com- 
merce    65 

Loss ;  incident  to  strikes  must  be  borne  by  employer  and  em- 
ployee   196 

Maintenance,  matters  of,  under  government  control  must  be 

adjusted   206 

Management : 

Amount  of  business  attracted  to  a  particular  road  proof 

of  wise   17i 

Difficulties  of,  if  lines  cover  a  vast  area 176 

Transportation  Court  to  have  power  to  require  change  of, 

for  inefficiency 55 

Under  federal  incorporation  to  remain  the  same 120 

Wise  management  of  a  particular  road  attracts  business  174 
Manager,   difficulties  encountered  by,  if  roads  cover  a  vast 

area   176 

Market  value: 

Face  value  of  stock  compared  with,  on  May  1,  1919  ....     86 

Present,  of  stock,  lower  than  true  value 86 

Merger.    See  Consolidation  and  reorganization. 

Minimum  rates: 

Interstate  Commerce  Commission  shall  not  fix,  below  level 

that  will  not  yield  five  per  cent,  for  dividend  purposes     22 
National   Transportation   Court  not  to   allow  rates  that 

will  not  yield  a  minimum  of  five  per  cent,  per  annum  .     10 

Minister  of  Transportation: 

Full  measure  of  justice  for  railways  could  be  obtained  by  148 

Objections  to    148 

Placing  of  properties  under,  would  be  political  center  of 

presidential    campaign    149 

Real  protection  would  not  be  provided  security  holders 

by    150 

Supreme  regulatory  power  over  railways  in   conjunction 

with  the  Interstate  Commerce  Commission  to  be  vested 

in 148 

To  be  a  member  of  the  President's  cabinet 148 

Would  fail  to  end  recurring  cycle  of  bankruptcies 150 

Would  furnish  new  formulas  for  making  rates 150 

Would  resemble  Interstate  Commerce  Commission 149 

Morawetz,  Victor,  regional  railway  plan  outlined  by 155 


231 

Page 
National  interests: 

Should  be  under  sole  jurisdiction  of  federal  authority  . . .   134 

State  action  should  not  control   134 

National  Railway  Association,  Interstate  Commerce  Commis- 
sioners and  representatives  of  railways  to  compose  . . .   143 
National  Securities  Holders  Association: 

Federal  incorporation  opposed  by 109 

Reasons  for  opposition  of,  to  federal  incorporation  ....   110 
National  Transportation  Court: 

Acts  inconsistent  with,  to  be  repealed 25 

Administrative  powers  to  be  exercised  by,  in  appellate 

proceedings    8 

Advantages  of,  in  litigating  cases 37 

Appeals  from  rulings  of,  to  be  to  the  United  States  Su- 
preme Court  17-18 

Appellate  jurisdiction  of,  over  all  orders  issued  by  Inter- 
state Commerce  Commission  upon  appeal  to 8 

Appoints   to   be   made   by    President   and   confirmed   by 

Senate  . .       7 

Approval  of  stock  and  securities  issues  by 11 

Ascertainment  of  values  of  stocks  and  bonds  by,  and  is- 
suing federal  corporation  stock  at  par  in  lieu  thereof  .9-10 
Authority   and   jurisdiction    of    review    should   be   taken 

from  all  courts  and  vested  in 8 

Carriers  operating  under  state  charters  may  be  enjoined 
by,  from  doing  business  affecting  interstate  com- 
merce    12 

Certificates  of  incorporation  to  be  issued  by 11 

Charters  to  be  issued  by,  for  federal  incorporation   of 

railway  and  steamship  companies   9 

Composition  of   7 

Conditions  and  compensation  for  use  of  terminals,  to  be 

fixed  by,  when  carriers  cannot  agree  14 

Contrast  of  procedure  necessary  under  regional  plan  and 

plan  of  165 

Controversies  with  the  government  arising  out  of  Federal 

Control  Act  to  be  determined  by 15 

Date  for  return   of  roads  to  private  control  should  be 

fixed  by   15,  207 

Director  for  each  carrier  to  be  appointed  by 13 

Emergency  fund  may  be  applied  on  dividends  by,  when 
conditions  arise  preventing  carriers  from  earning  a  five 
per  cent,  minimum  10 


232 

National  Transportation  Court — continued.  Page 

Enlargement  of  Commission's  Bureau  of  Statistics  so  as 
to  include  statistical  data  of   .  . . . 21 

Existing  carriers  to  transfer  property  to  federal  company 
under  forms  prescribed  by   12 

Fixing  minimum  selling  price  of  stock  and  securities  is- 
sues  by    11 

Fullest  measure  of  justice  and  service  will  be  obtained 
by  giving  full  regulatory  power  to 153 

General  jurisdiction  of  15 

Increase  in  terminal  facilities  may  be  ordered  by,  and 
cost  apportioned  among  carriers  using  the  same 14 

Information  or  advice  may  be  required  from.  Interstate 
Commerce  Commission  by   14 

Intervention   of,   into   receivership   proceedings   for   pur- 
pose of  aiding  a  speedy  disposition  13 

Judicial  functions  exercised  by  the  courts  in  considering 
appeals  would  be  vested  in 8,  36 

Jurisdiction  over  consolidation  and  reorganization  of  rail- 
ways to  be  exercised  by   12 

Matters  over  which  appellate  jurisdiction  would  be  vested 
in 36 

Matters  over  which  original  jurisdiction  would  be  vested 
in 35-36 

May  direct  surrender  of  state  charters 11-12 

Method  of  fixing  stock  values  by 82 

Must   be  created  to   determine   questions  pertaining   to 
transportation    30 

Must  exercise  both  judicial  and  administrative  power  . . .   159 

Original  and  appellate  jurisdiction  to  be  vested  in 35 

Original  jurisdiction  of   47 

Powers  of: 

To  exercise  both  judicial  and  administrative  functions       4 
To  require  change  of  management  for  inefficiency  ...     55 

Proper  body  to  settle  all  questions  between  government 
and  owners   206 

Proposed  plan  of: 

Establishing,  with  original  and  appellate  jurisdiction, 

both  judicial  and  administrative 3 

Extending  powers  of  Interstate  Commerce  Commis- 
sion with  right  of  appeal  to  3 

Rates  may  be  so  adjusted  by,  as  to  produce  an  emergency 
fund  ..  10 


233 


National  Transportation  Court  —  continued. 

Rates  that  will  not  yield  a  minimum  of  five  per  cent,  per 
annum  not  to  be  permitted  by  ......................     10 

Reason  for  necessity  of  ..............................     47 

Receiverships  of  railways  to  be  raised  by,  upon  basis  of 
capitalization  as  will  permit  carriers  to  earn  five  per 
cent,  on  its  stock   ................................  12-13 

Removals  only  by  impeachment  in  same  manner  and  for 
same  causes  as  United  States  judges  ...............  7,  153 

Rules  and  regulations  for: 

Administering  compensation,  to  be  prescribed  by  ...     16 
Corporate  organization  of  company  after  charter  is 
issued,  to  be  prescribed  by   ....................     11 

Performance  of  its  duties  to  be  prescribed  by  ......     17 

Rulings  and  findings  of,  to  be  enforced  in  same  manner 
as  United  States  courts  enforce  their  judgments  and 
decrees    ..........................................       9 

Salaries  of  members  ................................       7 

Should  be  clothed  with  same  independence  and  freedom 
of  action  that  belongs  to  the  federal  judiciary  .......   153 

Stock  issues  should  be  approved  by  ..................  97-98 

Term  of  office  of  members  of  ........................       7 

To  operate  as  a  court  of  review  of  the  Interstate  Com- 
merce Commission  's  administrative  orders  ...........       8 

To  require: 

Carriers  to  provide  necessary  facilities  for  expedi- 
tious handling  of  all  traffic  under  normal  condi- 
tions   ........................................     14 

Production  of  evidence,  and  punish  for  contempt  or 
failure  to  obey  its  orders  ......................     17 

Value  of  bonds  and  other  obligations  to  be  determined  by     78 
Values  of  railway  properties  to  be  ascertained  by,  for 
purpose  of  levying  state  taxes  .....................  16-17 

Workmen  's  compensation  bureau  to  be  established  by  ...     15 
Necessity  for  a  central  authority  .........................     35 

New  York,  New  Haven  &  Hartford  R.  R.,  an  example  of  con- 

siderable   financing    ...............................   124 

Noncompetitive  rates,  reduction  in,  to  reduce  excess  earnings  146 
Norfolk  &  Western  Ry.  Co.: 

Operating  income,  1908  to  1917,  inclusive  .............    173 

Results  of  applying  regional  plan  to,  illustrated  .......   170 

Obligations,  bonds  and  other  .............................     78 

Obstacles,  Congress  must  remove,  before  railways  can  perform 

their  functions  as  common  carriers   .................     44 


234 

Page 
Operating  income: 

Arriving  at  values,  by  estimating  true,  probably  the  least 

reliable  method  yet  advanced 173 

Capitalization  of,  at  a  fair  rate  in  determining  value  of 

roads   169 

Change  in  rates  would  make  a  tremendous  difference  in  . .   174 

Decrease  in,  for  Class  I  roads,  1917-1916 58 

Factors  unforseen  and  uncontrollable  unite  to  influence  . .   173 

Norfolk  &  Western  R.  R.,  1908  to  1917,  inclusive 173 

Operation : 

Errors  in,  have  tended  to  depress  credit  of  roads 2 

Method  of  operating  efficient  railways   175 

Partisan  struggles,  forseen,  if  government  enters  into  financial 

partnership  with  roads   187 

Party  in  interest,  compensation  of  employees  paid  by  public 

which  is  only    199 

Philadelphia  &  Reading  Railway,  comparison  of  earnings  made 

by,  with  those  of  the  B.  &  O 136 

Pleadings,  establishment  of  suggested  plan  will  secure  findings 

being  made  upon  original  record  without  additional  ...     32 

Police  power  65 

Any  legislation  enacted  by  Congress  should  define  and  fix 

limits  of  state,  affecting  interstate  commerce 70 

Full  extent  of,  has  never  been  precisely  defined  by  state 

or  federal  courts 65 

Most  extensive  power  possessed  by  the  states 65 

Operation  of  carriers  under  state  charters  subject  to,  will 
leave  doubts  and  uncertainties  as  to  extent  of  state 

jurisdiction  over  interstate  carriers   66 

State  authorities  constantly  obstructing  interstate  com- 
merce in  exercising  65 

States  entitled  to  know  limits  of,  over  interstate  com- 
merce         70 

Supreme  Court  flooded  with  controversies  over,  of  states  .     65 
Political  influence: 

Effect  of,  upon  government  operation 152 

Federal  tribunals  will  disappoint  public  if  subjected  to  .   153 

Freedom   from    150 

Political  parties,  appointees  for  commerce  commission  of  re- 
gional districts  to  be  named  by  131 

Political  positions: 

Men  selected  for,  because  of  their  ability  to  bring  sup- 
port to  the  party  candidate,  rather  than  for  fitness  ....   152 


235 

Political  positions — continued.                                                      Page 
Sought  not  only  for  the  compensation  but  to  gratify  ambi- 
tion of  applicant  151 

Politics,  properties  might  be  carried  into,  by  placing  under 

cabinet  officer   149 

Pooling : 

Agreements  for,  to  diminish  excess  earnings 146 

Carriers    may    enter    into,    with    approval    of    Interstate 

Commerce  Commission    23 

Establishment  of  suggested  plan  will  secure  cooperation 

by    33 

Federal  Railway  Board  to  have  power  over 158 

Taxation  on  excess  earnings  would  promote 147 

Power  of  Commission.     See  Interstate  Commerce  Commission. 
President : 

Members  of  Commerce  Commissions  for  each  regional  dis- 
trict to  be  appointed  by 131 

Roads  would  be  unable  to  sell  securities  if  returned  by, 

without   legislation 52 

Presidential  campaign,  placing  of  properties  under  Minister  of 

Transportation  would  be  political  center  of 149 

Price,  fixing  minimum  selling,  of  stock  and  securities  issues, 

by  National  Transportation  Court 11 

Private  Control: 

Complete  governmental  regulation  with,  must  be  main  pur- 
pose of  Congress  to  meet  public  requirements   3 

Date  for  return  to  be  fixed  by  National  Transportation 

Court   ' 15 

Government  cannot  carry  on  business  as  economically  as  .   152 
Private  interest;    clutch  of,  must  be  removed  by  Congress  to 

promote  the  general  welfare 193 

Private  management.    See  Private  control. 
Procedure : 

Before  state  commissions  160-161 

When  complaint  filed  with  Regional  Board  162 

Production  of  Evidence.    See  Evidence. 
Profits: 

Employees  desiring  to  participate  in,  can  purchase  stock  .   143 
Would  be  greater  under  federal  incorporation  than  under 

state  charters   120 

' '  Property  investment ' ' : 

Defined   103 

Difference  between,  and  actual  value  of  property  ...107-108 


236 

Page 
Prosperity,  nation  can  not  prosper  if  interstate  and  foreign 

commerce  governed  by  many  masters  203 

Public: 

Chief  sufferer  as  result  of  strikes 197 

Entitled  to  legislation  against  strikes   197 

Impartial  federal  tribunal  can  be  created  that  would  do 
justice  in  determining  controversies,  to  both  employees 

and 193, 194 

Losses  due  to  government  operation  to  be  made  up  by  tax- 
ation   205 

More  interested  in  adequate  service  than  small  dividends  93-94 

No  power  to  coerce  or  injure  employees 194 

Power  to  injure  or  destroy,  should  be  stripped  from  em- 
ployees    194 

Removal  of  obstructions  against  carriers  placed  by  state 

and  federal  legislation  demanded  by  94 

Safety  of,  should  never  be  left  to  any  combination  organ- 
ized to  promote  its  own  interest 192 

Servants  of,  must  not  use  their  employment  so  as  to 
impose  loss  and  injury  upon  198 

Public  detriment,  list  of  federal  laws  that  restrain  and  limit 

the  action  of  the  carriers  to  the 28 

Public  interest  : 

Clutch  of  every  private  interest  must  be  removed  by  Con- 
gress to  promote 193 

Demands  that  it  be  protected  from  unjust  exaction  im- 
posed by  either  carrier  or  employees 190 

Maintenance  of  competition  in  service  demanded  by 174 

Safeguarding  of,  paramount  to  everything  else 91,  92 

Public  requirements,  complete  governmental  regulation  with 
private  ownership  and  operation  must  be  main  purpose 
of  Congress  to  meet 3 

Public  servants: 

Compensation  of,  fixed  by  federal  authority  with  exeep- 

tion  of  railway  employees   194 

Employment  must  not  be  used  in  such  manner  as  to  im- 
pose loss  and  injury  upon  the  public 198 

Legislators  fail  to  realize  that  motormen  and  conductors 
operating  trolleys  serve  the  public  in  same  manner  as 
policemen  , 197 

Public  tribunals.    See  Tribunals. 


237 

Page 
Public  utilities: 

Government   operation   answer   to   socialistic   clamor   for 

government   ownership    205 

Public  become  helpless  victims  due  to  strikes  of  employees 

of  196 

Public  welfare: 

Agreements   or  combinations  in   restraint   of   trade,  are 

illegal  and  destructive  of 189 

Power  of  Congress  to  fix  wages  consistent  with 193 

Eailroad  administration : 

Deficits  of,  borne  by  public 205 

Equipment  bought  by,  unnecessary 206 

Railway  employees.     See  Employees. 
Railway  executives: 

Constant  personal  touch  kept  by,  of  efficient  railways  with 
shippers  and  industrial  enterprises  along  their  lines  . .   175 

Plan   of    148 

Railway  Financing.     See  Financing  of  carriers. 
Railway  securities  holders.     See  Security  holders. 

Rate  committee,  regional  commissions  to  be  aided  by 131 

Rate  making,  Federal  Railway  Board  to  have  supreme  power 

over 158 

Rates.    See  also  Adjustment  of  rates;   Minimum  rates. 

Change  in,  would  make  a  tremendous  difference  in  oper- 
ating income   174 

Competing  lines  compelled  to  have  same 135, 145 

Elimination  of  conflict  between  state  and  federal  author- 
ities by  proposed  plan  of  regulating  state 69 

Establishment    of    suggested    plans   will   insure    a   lower 

•  level   of    34 

Minister  of  Transportation  would  furnish  new  formulas 

for  making    150 

National  Transportation   Court  not  to  permit,  that  will 

not  yield  a  minimum  of  five  per  cent,  per  annum 10 

Necessary  instrumentalities  in  interstate  commerce 190 

No  rate  can  be  just  unless  it  takes  in  whole  field  of  car- 
riers operations    129 

Will  have  to  be  readjusted  so  as  to  yield  investors  in  se- 
curities a  fair  return 2-3 

Recapitalization : 

Effect  of  proposed  plan   104 

Federal  Railway  Board  to  have  supreme  power  over 158 


238 

Recapitalization — continued.  Page 

Illustration  of  saving  to  be  affected  under  proposed  plan 

of   103-104 

Scheme  of,  must  be  so  ordained  that   railways  will  be 

placed  on  safe  financial  basis 143 

Receivership : 

National  Transportation  Court  may  intervene  in  proceed- 
ing of,  for  purpose  of  aiding  a  speedy  disposition  ....     13 
Raising  of,  by  National  Transportation  Court,  upon  basis 
of  capitalization  as  will  permit  carrier  to  earn  five  per 

cent,  on  its  stock  12-13 

Regional  Banks : 

Analogy  between,  and  regional  railways .166, 167 

System  in  use  for,  should  be  organized  for  regional  rail- 
ways    166 

Regional  Board: 

Actions  of,  to  be  reviewed  by  Central  Board  of  Regula- 
tion      163 

Procedure  followed  when  complaint  filed  with 162 

Regional  Commissions: 

Machinery  of,  would  be  complicated  and  cumbersome  . . .   132 

Rate  committees  to  be  appointed  to  help 131 

Selection  of  Commissioners  for,  by  executive  committees  .   132 

Separate  rate  committees  to  aid 131 

Would  overburden  the  Interstate  Commerce  Commission  132 

Regional  Districts    131 

Commissions  of  three  members  each  to  be  appointed  by 

President  for  each  131 

Country  to  be  divided  into  six 131 

Object   of    131 

Plan  of  security  holders  in  dividing  country  into 131 

Rate  committees  for,  to  be  separate  from  Regional  Com- 
mission     131 

Size  of 156 

Regional  plan: 

Adoption  of,  would  inflict  the  grossest  injustice  upon  se- 
curity holders   174 

Carriers  not  compelled  to  join 167 

Consolidation  of  the  Norfolk  &  Western  and  Seaboard 

Air  Line  Railways  under,  illustrated 171 

Division  of  the  country  into  regions  with  Federal  Railway 

Corporation  for  each   169 

Draws  railroads  closer  to  the  general  principles  of  gov- 
ernment ownership  156 


239 

Regional  plan — continued.  Page 

Federal  corporation  to  have  jurisdiction  over  20,000  or 

25,000  miles  of  railways  under  167 

Issuance  of  securities  under   169 

No  benefit  secured  by  weak  lines  consolidating  with  each 

other  under   168 

Railways  to  lose  charters  and  identity  under 167 

Results  of  applying,  to  Seaboard  Air  Line  and  the  Nor- 
folk &  Western  Railways,  illustrated 170 

Results  of  Congress  compelling  all  roads  in  a  given  region 
to  surrender  their  property  to  be  operated  as  a  single 

unit   168 

Six  thousand  miles  maximum  trackage  for  efficiency  of 

operation  under    174 

Value  of  railroad  property  as  determined  under  proposed  171 

Weak  lines  to  be  supported  by  strong  lines  under 167 

Weak  lines  would  immediately  enter  into,  while  strong 
lines  would  continue  to  operate  under  state  charters  if 

carriers  not  compelled  to  join  168 

Will  not  work  out  in  actual  practice 168 

Regional  railways    155 

Advantages  of   166 

Agencies  necessary  for  success  of   160 

Analogy  between,  and  regional  banks 166, 167 

Carriers  will  be  expected  to  voluntarily  enter  into  regional 

scheme 167 

Contrast  of  procedure  necessary  under,  and  plan  of  Na- 
tional Transportation  Court    165 

Federal  Railway  Board  to  have  supreme  power  over  . .  155, 158 

Good  features  of,  overlooked 157 

Governmental  tribunals  must  cooperate  in  order  to  put 

plan  in  working  order 160 

Huge  and  cumbersome   160, 177 

Interstate   Commerce   Commission   could   act   as   supreme 

governing  head 158 

Mammoth  railway  corporations  to  conduct  all  transporta- 
tion for  entire  country  155 

Operation  of   174 

Organization  and  operation  of  railways  on  regional  basis  166 

Plan  outlined  by  Victor  Morawetz   155 

Plan  would  result  in  five  government .  ownerships  instead 

of  one  157 

Proposed  plan  of  operation  by  Federal  Corporation 166 

Railways  securities  holders  oppose  plan  for 156 


240 


Regional  Railways — continued.  Page 

System  in  use  for  regional  banks  should  be  organized  for  16(5 
Regulation : 

Congressional : 

No  progress  toward  efficient   transportation   system 

until  repeal  of  restrictive 100 

Federal: 

Analysis  of  suggested  plans  for  system  of 3-4 

Conflict  of  authority  between  state  and 202 

Limitations  to  be  placed  upon  181 

Private  ownership  and  operation  with  complete,  must 
be  main  purpose  of  Congress,  to  meet  the  public  re- 
quirements    3 

Suggestions  of  Supreme  Court  for  elimination  of  con- 
flict between  state  and  202 

Tribunals  necessary  for  complete  system  of 4 

State: 

Conflict  of  authority  between  federal  and 202 

Suggestions  of  Supreme  Court  for  elimination  of  con- 
flict between  federal  and 202 

Regulation  of  railway  employees  189 

Regulatory  tribunal.    See  Tribunal. 

Rehabilitation,  enormous  sums  necessary  for,  within  next  five 

or  six  years 50 

Reorganization.     See  Consolidation  and  reorganization. 

Reorganization  of  capitalization   86 

Illustration  of  principle  of,  as  applied  to  Boston  &  Maine 

R.  R 88 

Restraint  of  trade: 

Agreements  or  combinations  in: 

By  common  law  and  by  statutory  enactment  are  il- 
legal        189 

,  Congress  and  state  legislatures  have  authority  to  prohibit  198 

Destructive  of  public  welfare  189 

Strikes  operate  to  restrain  movement  of  commerce  . .   199 
Return : 

Government  should  be  limited  to  extent  which  will  give 

<jarriers  a  safe  minimum  return 181 

Plan  suggested  will  secure  five  per  cent,  minimum 32 

Six  per  cent,  reasonable,  on  investment  121 

Return  of  roads 205 

Confusion  would  result  by  return  of  all  roads  on  a  specific 
day 207 


241 

Return  of  Roads — continued.                                                           Page 
Controversies  between  owners  and  government  will  be  nu- 
merous     208 

Date  for: 

Should  be  fixed  by  some  tribunal 207 

To  be  fixed  by  National  Transportation  Court  ...  15,  207 

Expenditures  of  new  capital  necessary  upon 207 

Should  be  gradual  208 

Should  be  made  at  an  early  date 208 

Universal  demand  for 205 

Review,  method  of,  must  be  superseded  by  a  shorter  and  sim- 
pler  procedure    38 

Risk,  element  of,  has  driven  price  of  stocks  to  their  present 

low  level    98 

Rules  and  regulations,  National  Transportation  Court  to  pre- 
scribe its  own,  for  performance  of  its  duties 17 

Rulings  and  findings,  National  Transportation  Court  to  en- 
force, in  same  manner  as  U.  S.  courts  enforce  their 

judgments  and  decrees  9 

Safety  of  public,  should  never  be  left  to  any  combination 

organized  to  promote  its  own  interests 192 

Savings,  illustration  of,  under  proposed  plan  of  recapitaliza- 
tion     103-104 

Schedules,   suspension  of,   shall  be  for  maximum  period  of 

ninety  days   21 

Seaboard  Air  Line  Railway,  results  of  applying  regional  plan 

to,  illustrated   170 

Securities : 

Adoption  of  regional  plan  would  inflict  grossest  injustice 

upon  holders  of   174 

Approval  of  issues  of,  by  National  Transportation  Court     11 
Argument   for   governmental    guaranty,   based   upon   as- 
sumption that  people  cannot  trust  their  Congress 184 

Capital  required  by  carriers  should  be  provided  by  in- 
vestors purchasing   51 

Congress  cannot  be  depended  upon  to  deal  fairly  with 

people  who  invest  in  railway 183 

Factors  necessary  to  obtain  investors  in   96 

Federal  authority  has  no  control  over  stock  or  bond  is- 
sues        75 

Federal  corporation  to  issue  but  one  class  of 77 

Federal  Railway  Board  to  have  supreme  power  over 158 

Fixing  minimum  selling  price  of,  by  National  Transporta- 
tion Court   11 

16 


242 


Securities — continued.  Page 

Governmental  purpose  to  guarantee  income  on  railroad, 

will  advance  socialism    181 

Investment  in,  under  present  laws  attended  with  great 

risk    52 

Investors  in 95 

Issuance  of,  under  regional  plan 169 

Issued  against  entire  road  and  cannot  be  divided  by  states  128 

Law  cannot  compel  anyone  to  purchase 95 

Motives  of  profit  actuated  investors  in  .  . . 50 

Plan  must  be  devised  whereby  investors  will  feel  justi- 
fied in  purchasing  new  issues  of 52 

Proposed  method  of  retiring  senior  77 

Eates  and  charges  will  have  to  be  readjusted  to  yield  a 

fair  return  to  investors  in 2-3 

Roads  would  be  unable  to  sell,  if  returned  by  President 

without    legislation    52 

Securities  Holders  plan: 

Analysis  of   106 

Disposition  of  excess  earnings  under 135 

Fundamentals  of 107 

Proposed  amendment  of 109 

Provides  that  no  new  mileage  be  built  unless  necessary  .  .    133 
Will  not  give  railways  sufficient  credit  to  secure  additional 

capital  when  necessary  143 

Security  holders.    See  also  Stockholders. 

Minister  of  Transportation  plan  would  not  provide  pro- 
tection   for    150 

Objection  of,  to  federal  incorporation   123 

Opposed  by  regional  railways  plan 156 

Senate  Interstate  Commerce  Committee.     See  Interstate  Com- 
merce Committee. 
Shipping  interests: 

Manager  with   authority   who   can   be  reached   on   short 

notice  for  personal  conferences  required  by   175 

Railway  executives  of  efficient  railways  keep  in  constant 

personal  touch  with  shippers 175 

Short-haul  traffic,   tariffs  should  be  made   with   view  to   all 

traffic  of  the  road  and  be  fair  as  between,  through  and  129 

Socialism : 

Aim  of   181 

Any  governmental  purpose  to  guarantee  income  on  rail- 
road securities  will  advance 181 


243 

Socialism — continued.  Page 

Government   must   adopt  a  policy   of,   and  enter  into  a 

purpose  of  experimentation  with  socialistic  theories  179, 180 
Spokane,  Portland  &  Seattle  Ry.,  deficit  of,  under  government 

guaranty  plan  would  be  borne  by  citizens  of  Maine  178, 179 
State  action.     See  also  State  authority;    State  laws. 

Any  legislation   enacted  by  Congress  should  define  and 

fix  limits  of,  affecting  interstate  commerce 70 

Carriers  have  been   embarrassed  by,  in  effort  to  secure 

necessary  capital    74—75 

Carriers  unable  to  properly  discharge  their  duties  due  to  42-43 

Congress  should  put  limitations  upon  70 

National  interests  should  not  be  controlled  by 134 

National  Transportation  Court  to  have  last  analysis  su- 
pervision and  appellate  jurisdiction  over 39 

Past  rule  of,  has  been  obstacle  to  carriers 42—43 

State  and  interstate: 

Conflictions  between  traffic   67 

Impossible  to  separate  or  allocate  cost  of  conducting  traf- 
fic moving   67-68 

State  authority: 

Complications  between,  over  interstate  carriers  will  con- 
tinue until  Congress  removes  power  of    130 

Difficulty  in  dealing  with,  over  interstate  carriers 130 

Existing,    over    interstate    railways    condemned    by    Su- 
preme Court    128 

Interstate  commerce  constantly  being  obstructed  by,  in 

exercising  police   power    65 

State  charters.    See  Charters. 

State  commerce,  power  of  Congress  over  203-204 

State  commissions: 

Advantages  of  cooperation  between  Interstate  Commerce 

Commission  and   112-113 

Appeals  from  orders  of,  shall  lie  to  the  Interstate  Com- 
merce Commission    20 

Authority    of    20 

Can   do   everything  that  regional  commissions  could   do 

and  in  shorter  time   132 

Composed  of  trained  experts 132 

Cooperation  with: 

Federal   commissions   can   be   accomplished    only  by 

federal   incorporation    62 

Federal  organization   125 

Interstate  Commerce  Commission 111-112 


244 


Cooperation  with — continued.                                                        Page 
Interstate  Commerce  Commission  may  refer  any  proceed- 
ing before  it  to,  for  investigation  and  report 20 

Interstate  Commerce  Commission  to  be  aided  by 126 

Obliteration  of   111 

Plan  giving  primary  jurisdiction  over  interstate  and  in- 
trastate  commerce  to,  with  right  of  appeal  to  the  Inter- 
state Commerce  Commission  4 

Power  of,  to  hamper  and  embarrass  interstate  commerce 

would  be  ended  by  federal  incorporation 61 

Procedure  followed  by,  when  complaint  filed  before  . .  160-161 
Process  of  appeal  by,  to  Interstate  Commerce  Commission 

would  eliminate  conflict   133 

Shall  be  auxiliary  to  the  Interstate  Commerce  Commis- 
sion   4-20 

Should  form  a  part  of  federal  scheme  of  regulation  ....   Ill 

To  be  preserved  40-41 

Unfortunate  experiences  railways  have  had  with  Texas  .   133 
Will  be  changed  into  national  tribunals  by  federal  incor- 
poration         61 

Would  be  part  of  unified  system  of  federal  regulation  op- 
erating under  national  law  39 

State  courts,  full  extent  of  police  power  has  never  been  pre- 
cisely defined  by   65 

State  laws: 

Carriers  must  be  unhampered  by  restrictive  28 

Expensive  and  inadequate  service  caused  by   43 

Investment   in   securities   under   present,   attended   with 

great   risk    52 

No  progress  toward  efficient  transportation  system  until 

regulatory,  are  repealed  100 

Bight  of  carriers  to  cooperate  denied  by 43 

Should  be  set  aside  whenever  they  interfere  with  ef- 
ficient and  equitable  transportation  29 

State  commissions  should  be  representative  of  both  na- 
tional and,  in  regulating  commerce  133 

Useless  and  wasteful  competition  caused  by 43 

State  legislation.    See  Legislation. 
State  legislature.    See  Legislatures. 

State  lines,  rates  to  be  just,  should  disregard 129 

State  rates.    See  Bates. 

State  regulation.    S&e  Begulation. 

State  statutes,  investors  neither  protected  or  encouraged  by  .98-99 

State  taxes.    See  Taxation. 


245 

Page 
State  Traffic: 

No  doubt  of  power  of  Congress  to  regulate 69 

Proposed  method  of  regulating   69 

State  tribunals.     See  Tribunals. 
Stocks.    See  also  Watered  stock. 

Approval  of  issues  of,  by  National  Transportation  Court     11 
Ascertainment   of  value  of,  by  National  Transportation 
Court  and  issuing  Federal  Corporation  stock  at  par  in 

lieu    thereof    9-10 

Bought  and  sold  at  a  price  much  below  par 98 

Causes  of  decline  in  values  of 101 

Element  of  risk  has  driven  price  of,  to  their  present  low 

level 98 

Employees  desiring  to  participate  in  profits,  should  be  per- 
mitted to  purchase    143 

Example  of  method  for  fixing  values  of 83 

Exchange  of  bonds  for  Federal  Corporation 78 

Exchange  of  present,  for  Federal  Corporation  stock   ...     81 
Face  value  compared  with  market  value,  May  1,  1919  . .     86 

Federal  Corporation,  to  be  issued  at  par 81 

Federal  Eailway  Corporation  to  issue,   for  all  railways 

located  within  its  particular  region  169 

Fixing  minimum  selling  price  of,  by  National  Transporta- 
tion Court    11 

Guaranty  upon,  issued  by  railroad  companies  to  be  placed 

by  government    178 

Impossible  for  carriers  to  do  new  financing  while,  selling 

so  far  below  par   104 

Method  of  fixing  values  of,  by  National  Transportation 

Court  82 

Method  of  issuing,  under  proposed  plan 54 

National  Transportation  Court  should  approve  issues  of  97-98 
Outstanding: 

Class  I  roads,  December  31,  1917 103 

In  excess  of  actual  present  value,  Class  I  roads 93 

Par  value  of: 

Compared    with   present    market    value    of,    Class    I 

roads 100-101 

Must  be  scaled  down  until  it  will  represent  actual 

value    102 

Must  be  so  adjusted  as  not  to  be  greater  than  actual 

value   101 

Present  market  value  of,  lower  than  true  value 86 


246 

Outstanding — continued.  Page 

Problem  to  be  solved  is  how  to  deal  with  present  holders 

of  railway   77 

Eailways   must   resort   to   sales   of,   to   supply  necessary 

capital 44 

Eeadjustment  of  issues  of,  imperative  86 

Regular  dividends  should  be  paid  on 178 

Replacement  of,  by  new  stock  issued  by  Federal  Corpora- 
tion         87 

Right  of  owners  of,  when  surrendered  to  Federal  Corpo- 
ration        123 

Should  be  made  more  attractive  by  exempting  from  taxa- 
tion        97 

Wages  of  employees  should  be  sufficient  so  as  to  permit 

their  purchasing 143 

Stockholders : 

Advantages  to  holders  of  bonds  under  Federal  Incorpo- 
ration     79-80 

Conditions    confronting    102 

Effect  of  government  operation  on 122 

If  regional  plan  adopted,  grossest  injustice  would  be  in- 
flicted upon   174 

Present   100 

Proposed  method  of  saving,  from  further  losses 102 

Rights  of,  not  to  be  disturbed  under  Federal  Incorpora- 
tion      119 

State  as,  would  have  same  status  as  an  individual 126 

Stronger  roads  would  receive  greater  return  on  their  in- 
vestments if  roads  did  not  divide  their  earnings  under 

proposed    plan    168 

Street  Railway  strikes.    See  Strikes. 
Strikes: 

Adamson  Act  passed  to  prevent  192 

Defined   199 

Employees  must  not  go  on,  in  pursuance  of  an  agreement  200 

Establishment  of  suggested  plans  will  prevent   33 

Every,  is  the  carrying  into  effect  of  a  previous  agree- 
ment       198 

Losses  incident  to,  must  be  borne  by  employer  and  em- 
ployee      196 

Losses  suffered  by  public  due  to,  because  of  improper 

steps  being  taken  against  warring  factions 196 

Method  by  which  Congress  could  eliminate 198 

Necessity  for  legislation  against  197 


247 

Strikes — continued.  Page 

Operate  to  restrain  movement  of  commerce 199 

Prohibition  of  agreements  by  law  will  avoid 199 

Public  chief  sufferer  as  result  of 196-197 

Public  entitled  to  legislation  against   197 

Purpose    of 195 

Results  of  street  railway,  upon  industrial  enterprises 196 

Right  of,  should  not  be  denied  to  labor  organizations  . . .   195 
Strong  Lines: 

Excess  earnings  of,  to  be  distributed  to  help  weaker  ones  167 

Weak  lines  to  be  supported  by 146, 167 

Suits,   employees   shall   not   bring  or  maintain,   account   per- 
sonal injuries    16 

Supreme  Court: 

Appeals  from  rulings  of  National  Transportation  Court 

to  be  to  17-18 

Elements  that  should  enter  into  value  of  railway  proper- 
ties must  be  decided  by 85 

Existing    state    authority    over    interstate    carriers    con- 
demned  by    128 

Flooded  with  controversies  over  police  powers  of  states  to 

regulate  interstate  commerce 65 

Suggestions  of,  for  elimination  of  conflict  between  state 

and  Federal  regulation  202 

Surplus,  few  railways  can  earn,  to  meet  requirements 44 

Suspension  of  schedules,  should  be  for  maximum  period   of 

ninety  days   21 

Tariffs  should  be  made  with  view  to  all  traffic  of  the  road, 

and  be  fair  between  through  and  short-haul  business  128-129 
Taxation : 

Comparative  table  showing  absurdity  of  present  method 

of    railroad    58-60 

Equal  to  dividends  of  Class  I  roads  during  1917 58 

Federal  government  to  receive  taxes  on  excess  earnings  .  .   147 

Graduated  excess  profits  tax  on  excessive  earnings 146 

Increase  in,  for  Class  I  roads,  1917  over  1916 58 

On  excess  capitalization   121 

Per  cent,  of,  on  excess  earnings  could  be  provided  by  act 

of    Congress    147 

Public  to  make  up  losses  of  government  operation  by  ...   205 

Revenues  of  carriers  seriously  menaced  by 58 

Stock  should  be  made  more  attractive  by  exempting  from     97 
Unequal  and  excessive,  would  be  eliminated  by  Federal  In- 
corporation       60 


248 

Taxation — continued.  Page 

Values  of  railway  properties  to  be  ascertained  by  Na- 
tional Transportation  Court  for  purpose  of,  by  the 

states 16-17 

Taxpayers : 

Burden  of  failure  of  proper  earnings,  if  stocks  and  bonds 

are  guaranteed  by  government  will  fall  upon 178 

Deficits   resulting   from    government   operation    must   be 

borne  by    152 

Transportation    enterprises    should    be    self-supporting, 

otherwise  they  will  become  a  burden  upon  182 

Terminal  facilities.    See  Terminals. 

Terminals   71 

Carriers  entitled  to  common  use  of,  when  practicable  ...     14 
Conditions  and  compensation  for  use  of,  to  be  fixed  by 
National   Transportation   Court   when   carriers   cannot 

agree   14 

Cost  of  construction  and  maintenance  of,  to  be  appor- 
tioned among  users  14 

Difficulties  of  securing  necessary  properties  for  construc- 
tion of,  if  roads  continue  operation  under  state  char- 
ters    71 

Establishment  of  suggested  plans  will  insure  cooperation 

by  joint  use  of 33 

Increase  in: 

Carriers  will  be  compelled  to  increase  their  terminal 

facilities  in  the  immediate  future 75 

May  be  ordered  by  National  Transportation  Court 

and  cost  apportioned  among  users 14 

One  of  the  first  necessities 71 

Eailway  managers  must  arrange  for 71 

Methods  by  which  requisite  land  can  be  secured  by  roads 

as  now  organized  for  construction  of 72 

Necessary  properties  for  construction  of  adequate,  can 

only  be  secured  by  federal  incorporation 74 

Tex,as  State  Commission.     See  State  commissions. 
Tracks,  establishment  of  suggested  plans  will  secure  coopera- 
tion by  joint  use  of   33 

Traffic  conditions,  improved  by  competition  between  roads  . .   175 
Trains : 

Establishment  of  suggested  plans  will  secure  uninter- 
rupted operation  of 33 

Power  to  stop  running  of,  in  hands  of  few  men  tends  to 
inefficiency  201 


249 

Page 

Transfer  of  property,  existing  carriers  to  affect,  to  Federal 
Company,  under  forms  prescribed  by  National  Trans- 
portation Court  12 

Transferring  existing  railways  to  federal  corporations 76 

Transportation : 

Plan  herein  suggested  will  secure  a  scientific  and  unified 

system   of    32 

Tribunals  necessary  for  an  adequate  system  of 41-42 

Transportation  Court.     See  National  Transportation  Court. 
Transportation  enterprises,  should  be  self-supporting,   other- 
wise it  will  become  a  burden  to  taxpayers 182 

Tribunals.     See  also  Central  authority. 

Creation  of  proposed,  will  eliminate  evils  of  the  past 42 

Date  for  return  of  roads  should  be  fixed  by  some 207 

Federal : 

Controversy  as  to  wages  should  be  submitted  to  an 

impartial 191 

Establishment  of  suggested  plans  will  insure  full  reg- 
ulatory power  being  vested  in 33 

Impartial,  can  be  created  that  would  do  justice  to 
both  employees  and  public  in  determining  contro- 
versies   193, 194 

Power  to  adjust  charges  for  both  intrastate  and  in- 
terstate traffic  must  be  vested  in  68 

Proposed  plan  would  eliminate  conflict  between  state 

and    39 

Safe  transportation  systems  can  only  be  secured  by 

placing  authority  over,  under  single 125 

"Will  disappoint  public  if  subjected  to  political  influ- 
ence    153 

Impartial : 

Interstate  Commerce  Commission  will  stand  between 
employee  and  public  as,  in  adjusting  labor  con- 
troversies    199 

Must  be  created  to  settle  controversies 201,  206 

Necessary  for  an  adequate  system  of  transportation  . .  .41-42 

Necessity  for  additional  regulating  bodies 45-46 

No  single  one  can  alone  perform  the  work  that  will  be  re- 
quired        46 

Number  necessary  for  complete  system  of  governmental 

regulation 4 

Public: 

Expenditures  of  carriers  have  been  increased  by  ...     27 


250 

Tribunals — continued.  Page 

Kevenues  of  carriers  have  been  decreased  by 27 

Kegulatory : 

Evils  which,  federal  laws  were  intended  to  prohibit 

could  be  corrected  by  29 

Should  be  removed  from  partisan  bias  influencing  its 

action    , 153 

State: 

Effect  of  regulation  by 110-111 

Proposed  plan  would  eliminate  conflict  between  fed- 
eral and  3i 

Transportation  that  will  render  the  best  public  serv- 
ice must  have  but  one  central  power  of  regulation  .     75 
Unified   control,   jurisdiction   over  both   state   and   interstate 
traffic  must  be  vested  in  same  regulatory  tribunal  to 

secure    69 

Unions,  practically  all  railway  employees  belong  to,  that  have 

power  to  quit  work  at  any  time 189 

United  States  Supreme  Court.    See  Supreme  Court. 
Valuation.    See  also  Value;    Value  of  property. 

Arriving  at,  by  estimating  the  true  operating  income  is 
probably  the  least  reliable  method  that  has  yet  been 

advanced 173 

Capitalization  of  operating  income  at  a  fair  rate  in  de- 
termining   of    roads    169 

Congress  cannot  lay  down  rules  whereby  railway,  can  be 

fixed 85 

Consideration  to  be  given  to  income  in  fixing,  of  roads  . .    169 
Fixing  of  railway: 

Belongs  exclusively  to  the  judiciary 85 

Not  a  legislative  function 8£ 

Interstate  Commerce  Commission  has  reached  no  conclu- 
sion as  to  elements  that  should  enter  into,  of  railroad 

properties 85 

Practical  way  of  measuring,  of  railroads 16£ 

Supreme    Court    must    finally    determine    elements    that 

should  enter  into,  of  railway  properties 85 

Theories  of  economists  for  railway  172 

Weight  given  economists  theories  for  railway,  must  be 

settled  by  courts   172 

Value.    See  also  Market  value;   Valuation. 

Cause  of  decline  in  stock 101 

Courts  must  fix,  and  lay  down  the  rules  whereby  all  the 
elements  constituting,  must  be  considered   172 


251 

Value — continued.                                                                          Page 
Determining,  is  not  within  the  scope  of  legislative  power  172 
Fixing  of   property,   or   specifying  the   elements   consti- 
tuting, not  a  legislative  function  172 

Method  proposed  in  fixing,  of  existing  railways 169, 170 

Method  used  in  arriving  at  the  value  of  a  railway  cannot 

be  provided  or  enforced  by  Act  of  Congress 172 

Par  value  of  stock  must  be  scaled  down  until  it  will  rep- 
resent actual  101, 102 

Property  value   as   determined   under   proposed   regional 

plan   171 

Subject  of  ascertaining,   complex    85 

Wide  margin  between  face  and  market,  of  stocks 100 

Value  of  property: 

Ascertainment  of,  by  National  Transportation  Court : 

And  issuing  of  Federal  Corporation  stock  at  par  to 

cover   9-10 

For  purpose  of  levying  state  taxes , 16-17 

Difference  between  actual,  and  " property  investment" 

107,  108 

Disagreement   between    economists   as   to   elements    that 

should  represent  84 

Laws  enacted  by  Congress  providing  workable  method  of 

determining,  could  at  any  time  be  altered  or  repealed  .   183 
Wages.    See  also  Compensation. 

Congress  has  right  to  regulate  employment  and  fix 190 

Consuming  public  pays,  of  employees  190 

Controversies  over: 

Should  be  submitted  to  Interstate  Commerce  Com- 
mission for  investigation   22 

Should  be  submitted  to  impartial  federal  tribunal  . .   191 

Employees  should  receive  just   140 

Interstate  Commerce  Commission  should  fix,  the  same  as 

it  fixes  compensation  of  carriers   200 

Jurisdiction  over  should  be  extended  to  Interstate  Com- 
merce Commission    200 

Pending  investigation  by  Interstate   Commerce  Commis- 
sion, shall  neither  increase  or  decrease 23 

Power  of  Congress  to  fix,  consistent  with  the  public  wel- 
fare     193 

Begulating   tribunal   that    Congress   may  establish   must 

have  same  jurisdiction  over,  as  over  rates 190 

Should  be  sufficient  to  permit  purchasing  of  stock 143 


252 

Page 
Waste: 

Carriers  have  been  forced  into  useless  and  wasteful  com- 
petition by  state  and  federal  laws 43 

Transportation    enterprises    should    be    self-supporting, 

otherwise  they  will  become  an  economic 182 

Watered  Stock: 

Elimination  of    93 

Most  railways  owe  their  beginning  and  original  construc- 
tion to    49 

Weak  lines: 

Distribution  of  excess  earnings  so  as  to  favor 24, 167 

No  benefit  secured  by  weak  lines  consolidating  with  each 

other  under  regional  plan 168 

Smaller  sums  to  be  charged,  for  car  rentals 146 

Strong  lines  will  support,  under  regional  plan 167 

To  be  helped  by  excess  earnings 144 

Would  rush  into  regional  plan  in  order  to  receive  help  and 

better  situation  of  their  stockholders 168 

Working  conditions,  Congress  has  power  to  better 193 

Workmans'    Compensation   Bureau,    National    Transportation 

Court  to  establish   .  15 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW 


AN  INITIAL  FINE  OF  25  CENTS 

WILL  BE  ASSESSED  FOR  FAILURE  TO  RETURN 
THIS  BOOK  ON  THE  DATE  DUE.  THE  PENALTY 
WILL  INCREASE  TO  5O  CENTS  ON  THE  FOURTH 
DAY  AND  TO  $1.OO  ON  THE  SEVENTH  DAY 
OVERDUE. 


NOV  10  WP 


FE&  22  1342 

Ifijfh 

REC'D  LD 

HAV2    '61    »PM 

O»  w 

LD  21-100m-7,'40  (6936s) 

25406 


45669? 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


